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Venture Capital and the Macroeconomy

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  • Christian C Opp

Abstract

I develop a model of venture capital (VC) intermediation that quantitatively explains central empirical facts about VC activity and can evaluate its macroeconomic relevance. The impact of VC-backed innovations is significantly larger than suggested by observed aggregate venture exit valuations, even after accounting for large exposures to systematic and uninsurable idiosyncratic risks. The risk properties of venture capital play a quantitatively important role in both explaining empirical regularities and shaping the value of ventures’ contributions to economic growth. The model is analytically tractable and yields exact solutions, despite the presence of matching frictions, imperfect risk sharing, and endogenous growth. Received January 16, 2018; editorial decision November 7, 2018 by Editor Stijn Van Nieuwerburgh.

Suggested Citation

  • Christian C Opp, 2019. "Venture Capital and the Macroeconomy," The Review of Financial Studies, Society for Financial Studies, vol. 32(11), pages 4387-4446.
    • Handle: RePEc:oup:rfinst:v:32:y:2019:i:11:p:4387-4446.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhz031
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    Citations

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    Cited by:

    1. Jeremy Greenwood & Pengfei Han & Juan M. Sánchez, 2022. "Financing Ventures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 1021-1053, August.
    2. Akcigit, Ufuk & Dinlersoz, Emin & Greenwood, Jeremy & Penciakova, Veronika, 2022. "Synergizing ventures," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    3. Ewens, Michael & Gorbenko, Alexander & Korteweg, Arthur, 2022. "Venture capital contracts," Journal of Financial Economics, Elsevier, vol. 143(1), pages 131-158.
    4. Boyan Jovanovic & Sai Ma & Peter L. Rousseau, 2022. "Private equity and growth," Journal of Economic Growth, Springer, vol. 27(3), pages 315-363, September.
    5. Verdickt, Gertjan & Deloof, Marc, 2024. "Banking on innovation: Listed and non-listed equity investing, evidence from société générale de Belgique, 1850–1934," Explorations in Economic History, Elsevier, vol. 93(C).
    6. Wentian Zhang, 2023. "The Effect of Antitrust Enforcement on Venture Capital Investments," Papers 2312.13564, arXiv.org, revised May 2024.
    7. Hu, Jinjin & Huo, Dong & Wu, Delin, 2024. "Digital economy development and venture capital networks: Empirical evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 203(C).
    8. Yoshiki Ando, 2024. "Dynamics of High-Growth Young Firms and the Role of Venture Capitalists," PIER Working Paper Archive 24-012, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    9. Martin Meier & Leopold Sögner, 2023. "Hunting for superstars," Mathematics and Financial Economics, Springer, volume 17, number 1, February.
    10. Niclas Dombrowski & Wolfgang Drobetz & Lars Hornuf & Paul P. Momtaz, 2023. "The Financial and Non-Financial Performance of Token-Based Crowdfunding: Certification Arbitrage, Investor Choice, and the Optimal Timing of ICOs," CESifo Working Paper Series 10393, CESifo.

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