The Extent of Venture Capital Exits（四）.docVIP

Canadian Labour Sponsored Venture Capital Corporations: Bain or Boon? ( Douglas J. Cumming School of Business University of Alberta Edmonton, Alberta Canada T6G 2R6 Tel: (780) 492-0678 Fax: (780) 492-3325 E-mail: Douglas.Cumming@ualberta.ca Http://www.bus.ualberta.ca/dcumming Jeffrey G. MacIntosh Toronto Stock Exchange Professor of Capital Markets Faculty of Law University of Toronto 78 Queen’s Park Toronto, Ontario Canada M5S 2C5 Tel: (416) 978-5785 Fax: (416) 978-6020 E-mail: j.macintosh@utoronto.ca Draft: March 2002 Canadian Labour Sponsored Venture Capital Corporations: Bain or Boon? Abstract We provide an empirical analysis of the legal and economic factors that affect the supply and demand for venture capital and the integration of venture capital markets across the Canadian provinces over the 1977-1999 period. The data provide strong support for the propositions that venture capital requires an active stock market, and that the supply of and demand for venture capital is affected by the real interest rate, and changes in real gross domestic product. The effect of government sponsorship on the supply of venture capital is also considered. The evidence suggests Labour-Sponsored Venture Capital Corporation (LSVCC) legislation has crowded out the supply of venture capital in some jurisdictions, particularly where both federal and provincial LSVCCs are allowed to operate in the jurisdiction. On the demand side, the data indicate that venture capital in a province increases with the number of new federal incorporations from that province, but not provincial incorporations. This incorporation evidence is consistent with the existence of a separating equilibrium in which a more expensive federal incorporation enables higher quality entrepreneurs to signal their ability to prospective venture capital investors. Key words: Venture capital cycle; Government sponsorship; Tax; Crowding out JEL classification: G24, G28, G32, G38, K22 1. Introduction The impor