On the asymmetric effects of stock market valuation and macroeconomic environment on venture capital and private equity

Purpose This study investigates the dynamic interactions between the financing of entrepreneurship through Private Equity and several factors, such as stock market valuations, gross domestic product and consumer prices, and the effect of monetary policy in the decision for investments. Design/methodology/approach Our methodology consists in applying a panel vector autoregression approach that allows testing the causality of the variables of interest without assuming any specific direction. We disaggregate private equity to venture capital investments and later stage private equity and we uncover their asymmetric response to the examined factors. All types of investments are shown to be affected by GDP, stock prices, consumer prices and interest rates. However, the effect of the latter three variables are evidently more pronounced in later stage private equity compared to venture capital. Findings Our findings contribute to the understanding of the motives behind Venture Capital and Private Equity financings and uncover novel paths of the transmission of monetary policy to entrepreneurial finance. Originality/value The novelty of this research concerns the investigation of the monetary policy impact on investment decisions, including venture capital and private equity. This article provides significant highlights for the first time in the relative literature, offering new knowledge in the investment decision-making process in a dynamic framework.