Formal Institutions, Culture, and Venture Capital Activity: A Cross-Country Analysis

44 Pages Posted: 6 Jul 2010 Last revised: 8 Oct 2012

See all articles by Yong Li

Yong Li

University of Nevada Las Vegas

Shaker A. Zahra

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: July 6, 2010

Abstract

Why does the level of venture capital activity vary across countries? This study suggests that the variation can be attributed to the different levels of formal institutional development. Further, this study proposes that venture capitalists respond differently to the incentives provided by formal institutions depending on different cultural settings. Analysis of VC activity for 68 countries during the 1996-2006 period shows that formal institutions have a positive effect on the level of venture capital activity, but this effect is weaker in more uncertainty-avoiding societies and in more collectivist societies. This study has useful theory and policy implications for venture capital and entrepreneurship development.

Keywords: Venture Capital, Institutions, National Culture, Uncertainty Avoidance, Collectivism

Suggested Citation

Li, Yong and Zahra, Shaker A., Formal Institutions, Culture, and Venture Capital Activity: A Cross-Country Analysis (July 6, 2010). Journal of Business Venturing, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1635265 or http://dx.doi.org/10.2139/ssrn.1635265

Yong Li (Contact Author)

University of Nevada Las Vegas ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

Shaker A. Zahra

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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