Entrepreneurial finance; venture capital; supply; negative interest rates; central bank rates; monetary policy
[en] We assess the impact of monetary policy (i.e., central bank interest rates) on the activity of venture capitalists (VC). Using data from 31 countries from 2004 to 2019, we find that VC firms’ fundraising activity increases when interest rates become negative. We explain this finding by referring to the principal-agent relationship between general and limited partners of VC firms in combination with behavioral finance arguments. Specifically, we identify three channels pertaining to a legal motivation (i.e., legislative hurdles and litigation risks), a liquidity motivation (i.e., substitution effect relative to other asset classes), and behavioral biases (i.e., mental accounting, conservatism, disposition effect, or prospect theory).
Research center :
Interdisciplinary Centre for Security, Reliability and Trust (SnT) > Other
Strategy & innovation
Author, co-author :
Fisch, Christian ; University of Luxembourg > Interdisciplinary Centre for Security, Reliability and Trust (SNT) > Entrepreneurship, Innovation, and New Technology (EINT)