A Reply to Douglas Cumming’s 'Review Essay : Public Policy and the Creation of Active Venture Capital Markets'

In Da Rin, Nicodano, and Sembenelli (2006) we evaluate the effectiveness of different public policies for venture capital using an econometric approach that allows to overcome several well-known flaws of purely cross-country studies. Our results cast serious doubts on the widespread illusion that channeling more funds would create more active capital markets, while they support the use of capital gains taxation and the creation of a stock exchange for exiting investments. Cumming (2010) criticizes our methodology and results. In this short note we reply to his criticisms and show why they are based on a misunderstanding of our methodology