Capital Market Depth, Technological Advancement, and Entrepreneurial Activity in Europe: A Calibrated Simulation Study of Curvilinear and Contingent Effects
Year: 2026
Type: preprint
Abstract: European policymakers have paired the Capital Markets Union agenda with large public investments in technological advancement, yet the joint consequences of these two levers for entrepreneurship remain poorly understood. This study develops and tests a framework in which capital market depth shapes how technology development translates into entrepreneurial activity. Drawing on finance-and-growth theory, the knowledge spillover theory of entrepreneurship, and the too-much-of-a-good-thing perspective, we argue that technology development has an inverted U-shaped relationship with new venture entry and that deep capital markets shift the turning point outward and flatten the downturn. At the venture level, we argue that capital market depth amplifies the growth returns to venture-level technological advancement, particularly in munificent task environments. We evaluate these predictions using a calibrated two-level simulation of 4,500 country-industry-years across 30 European economies and 14,000 new ventures, combining two-way fixed effects, instrumental variables, formal turning-point tests, and a 216-specification multiverse analysis. The inverted U holds where capital markets are shallow or average but disappears where they are deep, and the venture-level interaction is robust for growth but not for survival. The study offers a transparent, replicable design for future work with administrative European data.
Source: SocArXiv (OSF Preprints)
Author: Dustin Wayne
Language: English
Subfield: Management of Technology and Innovation
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7225653625
Cites:
Cited by:
Related to: