Working Paper: CEPR ID: DP18074
Authors: Thilo Huning; Fabian Wahl
Abstract: In this paper, we present novel data from the German-speaking area on 13,422 venture capital investments between 1999 and 2019, and document a novel and yet unexplained contributor to investors' home bias. We propose a new measure of regional identity based on a recent vehicle license plate liberalization in Germany, and leverage on a unique dataset of historical borders to examine how regional identity is formed. We use an instrumental strategy to establish a causal link between historical political instability, regional identity, and the home bias. Our results indicate that a common regional identity is highly relevant for investment decisions.
Keywords: Behavioral Finance; Home Bias; Venture Capital; Startups; Regional Identity; Culture; Instability
JEL Codes: G11; G24; G41; N20; Z19
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| historical political instability (N40) | regional identity (N90) |
| regional identity (N90) | home bias in venture capital investments (F23) |
| historical political instability (N40) | home bias in venture capital investments (F23) |
| regional identity (N90) | share of home bias investments (G51) |
| home bias in venture capital investments (F23) | geographic proximity (R12) |