Start-Ups, Venture Capitalists, and the Capital Gains Tax
By C. Keuschnigg, Søren Bo Nielsen. Social Science Research Network, 2004
287 citations recorded by the source corpus.
A model of start-up finance with double moral hazard is proposed. Entrepreneurs have ideas but lack own resources as well as commercial experience. Venture capitalists provide start-up finance and managerial support. Both types of agents thus jointly contribute to the firm's success, but neither type's effort is verifiable. We find that the market equilibrium is biased towards inefficiently low venture capital support. In this situation, the capital gains tax is particularly harmful. The introduction of a small tax impairs managerial advice and leads to first order welfare losses. Once the tax is in place, limitations on loss off-set may paradoxically contribute to higher quality of venture capital backed entrepreneurship and welfare.
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Citations in the corpus
- Capital Structure, Corporate Taxation and Firm Age (2012, unknown): “…in their start-up phase (’young’ firms) typically lack sufficient internal funds to finance investment (see, e.g., Beck, Demirg¨u¸c-Kunt and Maksimovic 2008, Keuschnigg and Nielsen 2004), and, due to uncertainty and information asymmetries, have limited access to equity financing (see, e.g., Diamond…”
- The impact of venture capital on innovation behaviour and firm growth (2010, unknown): “Given such a situation, venture capital management funds take advantage of their role as specialised finance intermediaries (Gompers and Lerner, 1991, 2001; Kannianen and Keuschnigg, 2004; Keuschnigg and Nielsen, 2004).”
- Public Policy and the Creation of Active Venture Capital Markets (2006, background): “[54] Keuschnigg, Christian, and Soren Bo Nielsen (2004) ’Start-ups, Venture Capitalits, and the Capital Gains Tax,’ Journal of Public Economics, 88 (5), 1011—1042.”
- Preplanned Exit Strategies in Venture Capital (2008, unknown): “For instance, one might build into the analyses behavioural factors related to trust and/or over-optimism in the spirit of Landier and Thesmar (2007) and Manigart et al.”