This includes developments that reduce asymmetric information; increase the completeness of markets; add possibilities to engage in financial transactions through contracts; reduce transaction costs; and increase competition. The idea to extend our work from financial integration to financial development goes back to the ECOFIN Council’s invitation in 2006 to “monitor and assess relevant institutional features that hinder the efficient functioning of the financial system”.
One of these financial development indicators measures the level of venture capital financing. Venture capital is indeed an attractive additional source of corporate financing, as it provides financing to young and small, research-based firms, which typically face constraints in the more traditional markets.