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The political and legal determinants of venture capital investments around the world

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  • Stefano Bonini
  • Senem Alkan

Abstract

This paper investigates the political and legal determinants of cross-country differences in venture capital (VC) investments. Our results show strong and positive effects of a favorable sociopolitical and entrepreneurial environment on the inception and development of VC investment activity. Controlling for effects due to the legal system prevailing in each country, we find strong evidence that this factor plays an important role in explaining cross-sectional variance. This result conveys important normative implications: entrepreneurship and innovation benefit significantly from an active VC industry, which also allows the ignition of virtuous cycles. Activating this cycle, though, relies on some socioeconomic prerequisites that government and institutions should primarily address. Copyright Springer Science+Business Media, LLC. 2012

Suggested Citation

  • Stefano Bonini & Senem Alkan, 2012. "The political and legal determinants of venture capital investments around the world," Small Business Economics, Springer, vol. 39(4), pages 997-1016, November.
    • Handle: RePEc:kap:sbusec:v:39:y:2012:i:4:p:997-1016
    DOI: 10.1007/s11187-011-9323-x
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    Cited by:

    1. Josephine Gemson & Thillai Rajan Annamalai, 2015. "A new perspective on private equity stage financing: evidence from investments in infrastructure," Venture Capital, Taylor & Francis Journals, vol. 17(4), pages 299-325, October.
    2. Dowling, Michael & O’Gorman, Colm & Puncheva, Petya & Vanwalleghem, Dieter, 2019. "Trust and SME attitudes towards equity financing across Europe," Journal of World Business, Elsevier, vol. 54(6), pages 1-1.
    3. Kerstin Bernoth & Roberta Colavecchio & Magdolna Sass, 2010. "Drivers of Private Equity Investment in CEE and Western European Countries," Discussion Papers of DIW Berlin 1002, DIW Berlin, German Institute for Economic Research.
    4. Rudra P. Pradhan & Mak B. Arvin & Mahendhiran Nair & Sara E. Bennett, 2017. "Venture capital investment, financial development, and economic growth: the case of European single market countries," Venture Capital, Taylor & Francis Journals, vol. 19(4), pages 313-333, October.
    5. Martina Lawless & Brian O'Connell & Conor O'Toole, 2015. "Financial structure and diversification of European firms," Applied Economics, Taylor & Francis Journals, vol. 47(23), pages 2379-2398, May.
    6. Hoch, Felix & Lohwasser, Todor S., 2019. "The influence of institutions on venture capital: How transaction costs, uncertainty, and change affect new ventures," Discussion Papers of the Institute for Organisational Economics 9/2019, University of Münster, Institute for Organisational Economics.
    7. Mohammad Mustafa & Syed Shahid Mazhar, 2021. "Commitment to capital raising for venture capital funds in India: An Application of ARDL Model," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 13(2), pages 121-133, December.
    8. Dutta, Nabamita & Sobel, Russell S., 2018. "Entrepreneurship and human capital: The role of financial development," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 319-332.
    9. Vazirani, Ashish & Sarkar, Subhro & Bhattacharjee, Titas & Dwivedi, Yogesh K & Jack, Sarah, 2023. "Information signals and bias in investment decisions: A meta-analytic comparison of prediction and actual performance of new ventures," Journal of Business Research, Elsevier, vol. 155(PB).
    10. Carolin Bock & Martin Watzinger, 2019. "The Capital Gains Tax: A Curse but Also a Blessing for Venture Capital Investment," Journal of Small Business Management, Taylor & Francis Journals, vol. 57(4), pages 1200-1231, October.
    11. Ioana PETRESCU, 2016. "Size Matters: Entrepreneurship and Institutions," Management Dynamics in the Knowledge Economy, College of Management, National University of Political Studies and Public Administration, vol. 4(1), pages 63-80, March.
    12. Marek Zinecker & Martina Skalicka & Adam P. Balcerzak & Michał Bernard Pietrzak, 2022. "Identifying the impact of external environment on business angel activity," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 35(1), pages 83-105, December.
    13. Pradhan, Rudra P. & Arvin, Mak B. & Nair, Mahendhiran & Bennett, Sara E. & Bahmani, Sahar, 2019. "Short-term and long-term dynamics of venture capital and economic growth in a digital economy: A study of European countries," Technology in Society, Elsevier, vol. 57(C), pages 125-134.
    14. Lawless, Martina & O'Toole, Conor & Lambert, Derek, 2014. "Financing SMEs in Recovery: Evidence for Irish Policy Options," Research Series, Economic and Social Research Institute (ESRI), number BKMNEXT276.
    15. Child, John & Karmowska, Joanna & Shenkar, Oded, 2022. "The role of context in SME internationalization – A review," Journal of World Business, Elsevier, vol. 57(1).
    16. Michael Dowling & Colm O’gorman & Petya Puncheva-Michelotti & Dieter Vanwalleghem, 2019. "Trust and SME attitudes towards equity financing across Europe," Post-Print hal-02194484, HAL.
    17. Douglas Cumming & Minjie Zhang, 2023. "Bankruptcy law and angel investors around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 54(7), pages 1256-1277, September.
    18. Ashish Vazirani & Titas Bhattacharjee, 2021. "Entrepreneurial Finance in the Twenty-first Century, a Review of Factors Influencing Venture Capitalist’s Decision," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 30(2), pages 306-335, September.
    19. Paola Bongini & Annalisa Ferrando & Emanuele Rossi & Monica Rossolini, 2021. "SME access to market-based finance across Eurozone countries," Small Business Economics, Springer, vol. 56(4), pages 1667-1697, April.
    20. Luca Grilli & Boris Mrkajic & Gresa Latifi, 2018. "Venture capital in Europe: social capital, formal institutions and mediation effects," Small Business Economics, Springer, vol. 51(2), pages 393-410, August.
    21. Nico Dewaelheyns & Cynthia Van Hulle & Yannick Van Landuyt & Mathias Verreydt, 2021. "Labor Contracts, Wages and SME Failure," Sustainability, MDPI, vol. 13(14), pages 1-15, July.
    22. Olabanji Oni, 2017. "Determinants of Venture Capital Supply in Sub-Saharan Africa," Journal of Economics and Behavioral Studies, AMH International, vol. 9(4), pages 87-97.
    23. repec:diw:diwfin:diwfin03050 is not listed on IDEAS
    24. Khan, Muhammad Zubair & Khan, Zafir Ullah & Hameed, Affan & Zada, Shehnaz Sahib, 2021. "On the upside or flipside: Where is venture capital positioned in the era of digital disruptions?," Technology in Society, Elsevier, vol. 65(C).

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    More about this item

    Keywords

    Venture capital; Macroeconomics; Political risk; G24; G32; F21;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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