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Success in Global Venture Capital Investing: Do Institutional and Cultural Differences Matter?

Published online by Cambridge University Press:  23 January 2015

Rajarishi Nahata ,
Sonali Hazarika  and
Kishore Tandon
Rajarishi Nahata
Affiliation:
[email protected], Zicklin School of Business, Baruch College/CUNY, 1 Bernard Baruch Way, Box B10-225, New York, NY 10010.
Sonali Hazarika
Affiliation:
[email protected], Zicklin School of Business, Baruch College/CUNY, 1 Bernard Baruch Way, Box B10-225, New York, NY 10010.
Kishore Tandon
Affiliation:
[email protected], Zicklin School of Business, Baruch College/CUNY, 1 Bernard Baruch Way, Box B10-225, New York, NY 10010.
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Abstract

We analyze the impact of institutional and cultural differences on success in global venture capital (VC) investing. In both developed and emerging economies, superior legal rights (and enforcement) and better developed stock markets significantly enhance VC performance. Remarkably, cultural distance between countries of the portfolio company and its lead investor positively affects VC success. Further analysis reveals that cultural differences create incentives for rigorous ex ante screening, improving VC performance. Finally, local VC participation enhances success and mitigates foreign VCs’ “liability of foreignness,” albeit only in developed economies. Our findings follow from analyzing VC investments in nearly 10,000 companies across 30 countries.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 49 , Issue 4 , August 2014 , pp. 1039 - 1070
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2015 

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