The Impact of Venture Capital Expenditures on Innovation in Europe

Angelo Leogrande,Lucio Laureti,Alberto Costantiello

doi:10.2139/ssrn.3930697

Abstract

We investigate the relationship between “Venture Capital Expenditures” and innovation in Europe. Data are collected from the European Innovation Scoreboard for 36 countries in the period 2010-2019. We perform Panel Data with Fixed Effects, Panel Data with Random Effects, Pooled OLS, WLS, Dynamic Panel. Results show that the level of Venture Capitalist Expenditure is positively associated to “Foreign Doctorate Students” and “Innovation Index” and negatively related to “Government Procurement of Advanced Technology Products”, “Innovators”, “Medium and High-Tech Products Exports”, “Public-Private Co-Publications”. In adjunct, cluster analysis is realized with the algorithm k-Means and the Silhouette coefficient, and we found the presence of four different clusters for the level of “Venture Capital Expenditures”. Finally, we propose a confrontation among 8 different algorithms of machine learning to predict the level of “Venture Capital Expenditures” and we find that the linear regression generates the best results in terms of minimization of MAE, MSE, RMSE.

Highlights

In this article we investigate the role of “Venture Capital Expenditure” in respect to innovation in European countries4 in the period 2010-2019
The investment of venture capital in Chinese start up has showed a controversial effect: at early-stage venture capitalists inhibit the investments of start ups in innovation while in the medium run the presence of external finance can promote a deeper technological innovation [19]
Results show that the level of Venture Capitalist Expenditure is positively associated to “Foreign Doctorate Students” and “Innovation Index” and negatively related to “Government Procurement of Advanced Technology Products”, “Innovators”, “Medium and HighTech Products Exports”, “Public-Private Co-Publications”

Summary

Introduction

In this article we investigate the role of “Venture Capital Expenditure” in respect to innovation in European countries in the period 2010-2019. The investment in innovation and Research and Development has positive effect on firm performance [14] For these reasons it is necessary to analyze if the presence of venture capitalists can improve the level of innovation. In other cases, such as for example in the health sector, the investment of venture capitalists in innovation is either profitable either social relevant [16]. If venture capital enterprises have a human capital with hard skills in STEM, there are greater probabilities of a positive effect on the innovation abilities of the invested firms [26]. Researchers and entrepreneurs in innovation technology should consider the strategic role of venture capitalist firms in providing financial resources even considering the shortermism associated to a more profit-oriented management of intellectual assets in a knowledge economy [33]. The appendix contains further materials on regressions, clusterization, machine learning and prediction

The econometric model We have estimated the sequent model:

Findings

Conclusions