Entrepreneurship and the Business Cycle: Stylized Facts from US Venture Capital Activity

34 Pages Posted: 16 Jun 2016

See all articles by Hashmat Khan

Hashmat Khan

Carleton University - Department of Economics

Pythagoras Petratos

University of Oxford - Said Business School

Date Written: June 15, 2016

Abstract

We consider US Venture Capital (VC) activity as a measure of entrepreneurship and study its relationship with the business cycle. This measure addresses some biases in alternative measures such as self-employment and business ownership that have been considered in previous literature. Despite the well-known volatility in VC activity, it remains an important source of funding for entrepreneurs engaging in innovative business creation. We document key stylized facts for VC entry (seed and start-up stage) and VC exit (late stage) at the aggregate and sectoral level. VC entry is more strongly correlated and is contemporaneous with the business cycle while VC exit lags the cycle by two quarters. There is strong evidence for a bi-directional causality between entrepreneurship and economic activity. A positive shock to VC activity has a positive effect on real GDP. Our findings can help inform policies designed to support entrepreneurship.

Keywords: Entrepreneurship, Venture Capital, Business Cycles

JEL Classification: E32, G24, L26

Suggested Citation

Khan, Hashmat and Petratos, Pythagoras, Entrepreneurship and the Business Cycle: Stylized Facts from US Venture Capital Activity (June 15, 2016). Available at SSRN: https://ssrn.com/abstract=2796458 or http://dx.doi.org/10.2139/ssrn.2796458

Hashmat Khan

Carleton University - Department of Economics ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada

HOME PAGE: http://www.carleton.ca/~hashkhan/

Pythagoras Petratos (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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