Venture Capital and Risk Perception

Abstract

This study extends the current state of research on venture capital (VC) determinants by in-troducing a behavioral perspective. We focus on individuals’ risk perception and connect it to Hofstede’s cultural dimensions of individualism and uncertainty avoidance. Individualism is related to overoptimism and uncertainty avoidance is related to overcaution, and hence affect the perception of risk. In a cross-country empirical analysis with 49 countries, we find that individualism is positively associated with VC activity, whereas uncertainty avoidance is neg-atively associated with VC activity. Our results are robust to controlling for other determi-nants as well as using other proxies of VC activity, other time periods, and sub-samples of countries.

Keywords: venture capital, risk perception, behavioral finance, individualism, uncertainty avoidance

JEL Classification: G24, O57, Z1