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

See all articles by Daniel Hain

Daniel Hain

IKE, DRUID, Aalborg University

Sofia Johan

Florida Atlantic University - Finance; Tilburg Law and Economics Center (TILEC)

Daojuan Wang

Aalborg University - Department of Business and Management

Date Written: January 20, 2014

Abstract

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

Hain, Daniel and Johan, Sofia A. and Wang, Daojuan, Determinants of Cross-Border Venture Capital Investments in Emerging and Developed Economies: The Effects of Relational and Institutional Trust (January 20, 2014). Journal of Business Ethics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2382327 or http://dx.doi.org/10.2139/ssrn.2382327

Daniel Hain (Contact Author)

IKE, DRUID, Aalborg University ( email )

Fibigerstraede 4, Room 16b
Aalborg, North Jutland DK-9220
Denmark
+45 9400 2724 (Phone)

HOME PAGE: http://vbn.aau.dk/en/persons/daniel-hain%2810bc7542-f8af-4cb9-a1b9-ceb6a999356f%29.html

Sofia A. Johan

Florida Atlantic University - Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Daojuan Wang

Aalborg University - Department of Business and Management ( email )

Aalborg, DK-9220
Denmark

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