Formal Institutions, Culture, and Venture Capital Activity: A Cross-Country Analysis
44 Pages Posted: 6 Jul 2010 Last revised: 8 Oct 2012
Date Written: July 6, 2010
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
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