The Political and Legal Determinants of Venture Capital Investments around the World
34 Pages Posted: 16 Nov 2006 Last revised: 10 Apr 2011
Date Written: March 23, 2011
This paper investigates the political and legal determinants of cross-country differences in VC investments. Our results show strong and positive effects of a favorable sociopolitical and entrepreneurial environment on the inception and development of VC investment activity. Controlling for effects due to the legal system prevailing in each country, we find strong evidence that this factor plays an important role in explaining cross-sectional variance. This result conveys important normative implications: entrepreneurship and innovation benefit significantly from an active VC industry, which also allows the ignition of virtuous cycles. Activating this cycle, though, relies on some socioeconomic prerequisites that government and institutions should primarily address.
Keywords: Venture Capital, Political risk, Entrepreneurship
JEL Classification: G24, G32, F21
Suggested Citation: Suggested Citation