Institutions, Networks, and Organizational Growth

Abstract

We examine the institutions that facilitate the growth of organizations. Following a Weberian approach, we argue that organizations prefer institutions that create an environment rich in technological opportunities, legally secure, financially vibrant and politically predictable, and that they rely on social networks in order to identify opportunities and reduce uncertainty. We report results using information on 1,010 American venture capital firms potentially investing in 95 countries during the 1990-2002 period. Countries with more opportunities, as measured by the level of scientific knowledge and technology, and those with more developed financial and political institutions receive more investments. We also find strong evidence for the effects of transnational communities and syndication networks.

Keywords: venture capital, international investment