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Macroeconomic and Capital Market Determinants of Venture Capital Investment

By Jeffrey Zeren

This thesis explores the impact of macroeconomic, equity and credit market conditions on venture capital investment. The theoretical methodology outlines the logical foundation that supports the relationships between each explanatory variable and the supply and demand of venture financing. The hypotheses suggested by theory are tested using five multi-vector ordinary least squares regression that analyze the impact of the macroeconomic and capital market variables, after adjustment for multicollinaerity and overspecification bias, on each stage of venture capital investment. The next empirical strategy uses category variables and interaction terms to vastly expand the number of observations in the dataset and provide a more robust analysis of select variables. The results show that macroeconomic conditions associated with increased economic activity and productivity growth cause an increase in venture capital investment at all development stages, though early and late stage investments are the most sensitive to growth and productivity advances. In addition, strong public equity market valuations and initial public offering successes are positively associated with venture capital investments. Finally, optimism in credit markets are found to have an indirect impact on venture capital investment, through confounding factors related to investor and entrepreneurial confidence.

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Advisor: Mary Beth Fisher | JEL Codes: G2, G24, E44

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