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

Lorna Dimitrova*, Sapnoti Eswar

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    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.
    Original languageEnglish
    Article numberrfac057
    Pages (from-to)1471–1519
    Number of pages49
    JournalReview of Finance
    Volume27
    Issue number4
    Early online date8 Sept 2022
    DOIs
    Publication statusPublished - Jul 2023

    Keywords

    • Innovation
    • Capital gains tax
    • Entrepreneurship
    • Venture capital

    Fingerprint

    Dive into the research topics of 'Capital gains tax, venture capital and innovation in start-ups'. Together they form a unique fingerprint.

    Cite this