Fintech Venture Capital

16 Pages Posted: 3 Oct 2018

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Armin Schwienbacher

SKEMA Business School

Multiple version iconThere are 2 versions of this paper

Date Written: September 2018

Abstract

Manuscript Type. Empirical. Research Question/Issue. Where are fintech venture capital investments taking place around the world? What is the role of institutional factors on the international allocation of fintech venture capital?. Research Findings/Insights. We document a notable change in the pattern of fintech venture capital (VC) investments around the world relative to other types of investments after the global financial crisis. We show that fintech venture capital investments are relatively more common in countries with weaker regulatory enforcement and without a major financial center after the financial crisis. Also, we show the fintech boom is more pronounced for smaller private limited partnership venture capitalists that likely have less experience with prior venture capital booms and busts. These fintech VC deals are substantially more likely to be liquidated, especially when located in countries without a major financial center. Theoretical/Academic Implications. We build on the institutions and corporate governance literatures by showing the importance of enforcement in driving relative differences in investment patterns and investor participation. For entrepreneurial startups, regulatory arbitrage drives investment into countries with a dearth of enforcement and regulatory costs. We argue that the spike in fintech venture capital in certain countries is attributable to differential enforcement of financial institution rules amongst startups versus large established financial institutions after the financial crisis. Practitioner/Policy Implications. Regulatory arbitrage in the context of fintech venture capital can spur booms and busts. Less experienced venture capitalists seem more prone to undertake investments that exacerbate boom and bust cycles. National governance is strengthened by the enforcement of regulatory standards, and corporate governance through investor experience and oversight can mitigate these swings, and facilitate better investment outcomes.

Keywords: Corporate Governance, International Venture Capital, Fintech, Financial Regulation, Regulatory Arbitrage

Suggested Citation

Cumming, Douglas J. and Schwienbacher, Armin, Fintech Venture Capital (September 2018). Corporate Governance: An International Review, Vol. 26, Issue 5, pp. 374-389, 2018. Available at SSRN: https://ssrn.com/abstract=3259461 or http://dx.doi.org/10.1111/corg.12256

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Armin Schwienbacher

SKEMA Business School ( email )

Lille
France

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