Frequent and open interaction between venture capitalists (VCs) and entrepreneurs is necessary for venture capital investments to occur. Increasingly, these investments are made across jurisdictions. The vast majority of these cross-border investments are carried out in a syndicate of two or more VCs, indicating the effects of intraindustry networks needing further analysis. Using China as a model, we provide a novel multidimensional framework to explain cross-border investments in innovative ventures across developed and emerging economies. By analyzing a unique international dataset, we examine worldwide venture capital investment flows from 2000-2012 and consider the effects of geographical, cultural, and institutional proximity as well as institutional and relational trust. We find trust to mitigate the negative effects of geographical and cultural distance, where institutional trust is more relevant for investments in emerging economies, and relational trust is more relevant for investments in developed economies. Keywords Venture capital Á Institutional trust Á Relational trust Á Corruption Á China Á Syndication Á Emerging economies JEL Classification G3 Á K4 Á D81
Manuscript Type
Empirical
Research Question/Issue
What is the impact of entrepreneurship on GDP/capita, unemployment, exports/GDP, and patents per population across countries? Is the impact of entrepreneurship mitigated by legal and cultural differences across countries? Do different international datasets provide different answers to these questions? We empirically compare the impact of entrepreneurship on GDP/capita, unemployment, exports/GDP, and patents per population across countries by examining three datasets from the World Bank, the OECD, and Compendia.
Research Findings/Insights
Based on a comprehensive sample of all available countries and years, with the World Bank data being the most comprehensive, we find entrepreneurship has a significantly positive impact on GDP/capita, exports/GDP, and patents per population, and a negative impact on unemployment. Inferences from the Compendia data are very consistent. By contrast, inferences from the OECD data are not supportive of any of these propositions.
Theoretical/Academic Implications
Our findings point to institutional and cultural impediments to the effectiveness of entrepreneurship. Most notably, the impact of entrepreneurship is significantly mitigated by excessively strong creditor rights that limit entrepreneurial risk‐taking. Furthermore, the data indicate that cultural attitudes associated with low risk‐taking limit the effectiveness of entrepreneurship. By contrast, the impact of entrepreneurship on exports/GDP does not appear to be directly tied to costs of exporting, which is perhaps best explained by the new economy goods and services created by entrepreneurs that depend less on such costs. For some subsets of the data we find evidence consistent with the view that top tier venture capital funds enhance the impact of entrepreneurship on GDP/capita. Finally, our results show how different definitions of new business entry matter for empirical analysis of entrepreneurship across countries.
Practitioner/Policy Implications
The data highlight the importance of access to finance without downside costs so that entrepreneurs are encouraged to take risk. Further, the data highlight institutional differences in risk attitudes that more generally inhibit risk‐taking and thereby limit the effectiveness of entrepreneurship. Moreover, the data highlight a central role for careful measurement of entrepreneurial activities and for inclusion of as many countries and years as possible in order to effectively analyze the impact of entrepreneurship.
This paper examines cross-country evidence on the duration of venture capital (VC) investment. We formulate a theory of VC investment duration based on the idea that venture capitalists exit when the expected marginal cost of maintaining the investment is greater than the expected marginal benefit, and thereby relate VC investment duration to entrepreneurial firm characteristics, investor characteristics, deal characteristics, and institutional and market conditions. VC investment duration data in Canada and the United States lend strong support to the theoretical predictions developed herein.
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