Determinants of Cross-Border Venture Capital Investments in Emerging and Developed Economies: The Effects of Relational and Institutional Trust
49 Pages Posted: 22 Jan 2014 Last revised: 10 Mar 2016
Date Written: January 20, 2014
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 intra-industry 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, relational trust is more relevant for investments in developed economies.
Keywords: Venture capital, institutional trust, relational trust, corruption, China, syndication, emerging economies
JEL Classification: G3, K4, D81
Suggested Citation: Suggested Citation