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Capital gains tax, venture capital and innovation in start-ups

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Dimitrova_2022_RF_Capitalgainstax_CC.pdf (612.1Kb)
Date
08/09/2022
Author
Dimitrova, Lorna
Eswar, Sapnoti
Keywords
Innovation
Capital gains tax
Entrepreneurship
Venture capital
HG Finance
3rd-DAS
MCC
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Abstract
We examine the effect of staggered changes in the state-level capital gains tax on venture capital (VC)-backed start-ups and show that an increase in the tax rate of VC firms reduces the quantity and quality of patents by the start-ups. The results are consistent with a reduction in VC firms’ incentives to provide effort: increases in the capital gains tax for VC firms lead to incrementally lower innovation exchanges between start-ups in the VC firm’s portfolio. VC firms also decrease the level of investment in start-ups and the size of their portfolio as well as increase the number of start-ups that they write off.
Citation
Dimitrova , L & Eswar , S 2022 , ' Capital gains tax, venture capital and innovation in start-ups ' , Review of Finance , vol. Advance articles , rfac057 . https://doi.org/10.1093/rof/rfac057
Publication
Review of Finance
Status
Peer reviewed
DOI
https://doi.org/10.1093/rof/rfac057
ISSN
1572-3097
Type
Journal article
Rights
Copyright © The Author(s) 2022. Published by Oxford University Press on behalf of the European Finance Association. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited.
Collections
  • University of St Andrews Research
URI
http://hdl.handle.net/10023/26754

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