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

Dimitrova, L; Eswar, SK
Date: 8 September 2022
Journal
Review of Finance
Publisher
Oxford University Press
Publisher DOI
https://doi.org/10.1093/rof/rfac057
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 ...
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.
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Finance and Accounting

Faculty of Environment, Science and Economy

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© 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.
Except where otherwise noted, this item's licence is described as © 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.