Cross-Border Venture Capital Investments: The Impact of Foreignness on Returns

30 Pages Posted: 13 Jun 2018

See all articles by Axel Buchner

Axel Buchner

University of Passau; CEPRES - Center of Private Equity Research

Susanne Espenlaub

University of Manchester - Manchester Business School

Arif Khurshed

University of Manchester - Manchester Business School, Division of Accounting Finance

Abdul Mohamed

Cranfield University - School of Management

Date Written: October 2017

Abstract

Against the background of the growing internationalization of venture capital (VC) investing, this is the first global comparison of the returns generated by individual domestic and cross-border deals. We examine investments worldwide during 1971–2009 and find that cross-border investments significantly underperform compared with equivalent domestic investments. Returns are negatively affected by geographic distances, cultural disparities, and institutional differences between the home and host countries. Returns on cross-border and domestic deals also decline after the late 1990s. International portfolio diversification and the saturation of domestic markets may explain why VC investors make cross-border investments despite poor expected returns.

Keywords: venture capital, cross-border, return, IRR, PME, foreignness, distance

Suggested Citation

Buchner, Axel and Espenlaub, Susanne and Khurshed, Arif and Mohamed, Abdul, Cross-Border Venture Capital Investments: The Impact of Foreignness on Returns (October 2017). Journal of International Business Studies, Vol. 49, Issue 5, 2017. Available at SSRN: https://ssrn.com/abstract=3193361 or http://dx.doi.org/10.1057/s41267-017-0116-6

Axel Buchner (Contact Author)

University of Passau ( email )

Innstraße 27
Passau, 94030
Germany

CEPRES - Center of Private Equity Research ( email )

Max-Joseph-Strasse 7
Munich, 80333
Germany

Susanne Espenlaub

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Arif Khurshed

University of Manchester - Manchester Business School, Division of Accounting Finance ( email )

Crawford House
Oxford Road
Manchester, M15 6PB
United Kingdom
+44 0 161 275 4475 (Phone)
+44 0 161 275 4023 (Fax)

Abdul Mohamed

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom

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