Institutional Determinants of Venture Capital Activity: A Survey of the Literature and a Research Agenda

Abstract

Venture Capital (VC) was borne and has flourished in the United States, yet it has only limitedly developed in other geographical areas. A conspicuous body of research have been carried out to investigate the factors which are more conducive to VC activism, and to the analysis of which factors may better explain the differences in the degree of development and performance across different geographical contexts. However, there is has been only a limited effort in the extant scientific literature on systematizing what we know (and what we do not know) about the institutional factors that may spur VC activity. This paper tries to close that gap, through a careful systemic survey of the existing literature on the topic, we depict the state-of-the-art on the scientific knowledge produced on the institutional determinants of VC activity. Grounding on the seminal distinction by North (1990), we will pay specific attention to formal (e.g. laws and formal rules) and also to those informal (e.g. cultural norms and tacit codes of behaviour) institutions which are found by the extant (mostly empirical) economic and management literature to affect the development of the VC industry and the activism of VC investors. Building on that, this paper aims to draw some considerations about interesting avenues for future research in this domain.

Keywords: Entrepreneurship, Venture Capital, Formal and Informal Institutions, Countries

JEL Classification: L26, M13, G20