1 Introduction
2 Theoretical development
2.1 Venture capital (VC) as an institution
2.2 Hypotheses development
2.2.1 Williamson’s (2000) model of hierarchy of institutions and VC
2.2.2 Formal institutions as determinants of VC activity
-
Hypothesis 1a: More developed structural formal institutions lead to more VC activity in a country.
-
Hypothesis 1b: More developed reformable formal institutions lead to more VC activity in a country.
2.2.3 Social capital and formal institutions in relation to VC activity
-
Hypothesis 2: More developed social capital leads to more VC activity in a country; however, the relationship between social capital and VC activity is mediated by structural formal institutions.
3 Data and methodology
3.1 Variables
3.1.1 Dependent variables
3.1.2 Explanatory variables
3.1.3 Control variables
Variable | Description | Source |
---|---|---|
VC activity | Total amount of VC investments per gross domestic product at purchasing power parity (GDP PPP). | Invest Europe, World Bank |
FI index | Proxy of the level of structural formal institutional development. The composite index is generated by factorization from the following indicators: Governmental Effectiveness, Rule of Law, Political Stability, Voice and Accountability, Regulatory Quality, and Control of Corruption. | World Governance Index |
Employment protection | Index that captures strictness of employment protection legislation in terms of individual and collective dismissals (regular contracts). | OECD |
Taxation | Levied taxes on net income, corporate profits, and capital gains as a percentage of revenues. | World Bank |
Investor protection | Strength of minority investor protection index (0–10). | World Bank (time-invariant) |
RFI index | Proxy of the level of reformable formal institutional development. The composite index is generated by factorization from the following indicators: Employment Protection, Taxation, and Investor Protection. | OECD, World Bank |
Social capital | Proxy of the level of social capital development. The composite index is generated by factorization from the following indicators related to the extent of social networks, trust, and civic norms: membership in labor unions, political parties or organizations, professional associations, religious organizations, sports, educational, art, music, or cultural organizations; the extent to which people can be trusted; voluntary work for labor unions, political parties or organizations, professional associations, religious organizations, sports, educational, art, music, or cultural organizations. | European Value Survey (time-invariant) |
IPO volume | Total value of IPO as a percentage of GDP. | Zephyr Database |
M&A volume | Total value of M&A deals as a percentage of GDP. | Zephyr Database |
GDP growth | Annual percentage GDP PPP growth. | World Bank |
Inflation | Annual growth rate of the GDP implicit deflator. | World Bank |
Technological opportunity | Business enterprise expenditure on research and development (BERD) as a percentage of GDP. | OECD |
Internet bubble | Dummy variable that equals 1 for the years of the Internet bubble (1999–2000), and 0 otherwise. | – |
Financial crisis | Dummy variable that equals 1 for the years of the Financial Crisis (2007–2008), and 0 otherwise. | – |
Legal system dummies | Dummy indicators that capture the effect of legal institutions and classify countries according to legal tradition by taking into account several characteristics of the legal system. The legal systems are clustered into four groups: Common (English), French, German, and Scandinavian. | La Porta et al. (1998) (time-invariant) |
Variable | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1 | VC activity | 1 | |||||||||||||||||
2 | FI index | 0.5436 | 1 | ||||||||||||||||
3 | Employment protection | − 0.1670 | − 0.2726 | 1 | |||||||||||||||
4 | Taxation | − 0.0393 | − 0.0666 | − 0.1990 | 1 | ||||||||||||||
5 | Investor protection | 0.3168 | 0.2386 | − 0.2106 | 0.1833 | 1 | |||||||||||||
6 | RFI index | 0.2222 | 0.2006 | − 0.6956 | 0.6780 | 0.6916 | 1 | ||||||||||||
7 | Social capital | 0.4774 | 0.7508 | − 0.0866 | − 0.0879 | 0.2143 | 0.1214 | 1 | |||||||||||
8 | IPO volume | 0.2783 | 0.2037 | − 0.2001 | 0.0995 | 0.1100 | 0.2117 | 0.1046 | 1 | ||||||||||
9 | M&A volume | 0.3993 | 0.2802 | − 0.2176 | 0.1007 | 0.2074 | 0.2723 | 0.2490 | 0.5130 | 1 | |||||||||
10 | GDP growth | 0.1810 | 0.1740 | − 0.0606 | − 0.0238 | 0.0901 | 0.0691 | 0.0410 | 0.0344 | 0.2051 | 1 | ||||||||
11 | Inflation | 0.0742 | − 0.0859 | 0.0985 | − 0.0089 | 0.0387 | − 0.0155 | − 0.1241 | − 0.0167 | 0.0194 | 0.2776 | 1 | |||||||
12 | Technological opportunity | 0.3997 | 0.6919 | − 0.2937 | − 0.2940 | 0.0461 | 0.1285 | 0.5204 | 0.1176 | 0.1327 | − 0.0442 | − 0.2962 | 1 | ||||||
13 | Internet bubble | 0.1769 | 0.0238 | 0.0861 | − 0.0345 | 0.0110 | − 0.0512 | − 0.0065 | 0.0743 | 0.1626 | 0.2821 | 0.1351 | − 0.0661 | 1 | |||||
14 | Financial crisis | − 0.0194 | − 0.0125 | 0.0528 | 0.0543 | − 0.0079 | − 0.0046 | − 0.0019 | 0.1151 | 0.1352 | − 0.0158 | 0.0984 | 0.0086 | − 0.1190 | 1 | ||||
15 | Common legal system | 0.1493 | 0.1439 | − 0.4428 | 0.2123 | 0.5568 | 0.5935 | − 0.0102 | 0.2647 | 0.3445 | 0.2022 | 0.0003 | − 0.0980 | 0.0006 | − 0.0032 | 1 | |||
16 | French legal system | − 0.2600 | − 0.4823 | 0.3805 | 0.3571 | − 0.3178 | − 0.1281 | − 0.2938 | − 0.0094 | − 0.0889 | − 0.1599 | − 0.0852 | − 0.4658 | 0.0058 | − 0.0029 | − 0.3125 | 1 | ||
17 | German legal system | − 0.2404 | − 0.1434 | − 0.0290 | − 0.2650 | − 0.4389 | − 0.3627 | − 0.2652 | − 0.1394 | − 0.1875 | 0.0307 | 0.0704 | 0.0439 | − 0.0083 | 0.0109 | − 0.1980 | − 0.4510 | 1 | |
18 | Scandinavian legal system | 0.4194 | 0.5854 | − 0.0731 | − 0.3154 | 0.3687 | 0.0790 | 0.6040 | − 0.0552 | 0.0223 | 0.0005 | 0.0295 | 0.5684 | 0.0009 | − 0.0049 | − 0.2089 | − 0.4758 | − 0.3014 | 1 |
Country | Mean annual VC activity: VC investments as a portion of GDP [‰] | Mean annual VC activity: VC investments per capita [Euro] | ||
---|---|---|---|---|
1997–2015 | 2011–2015 | 1997–2015 | 2011–2015 | |
Austria | 0.224 | 0.064 | 11.1163 | 4.4591 |
Belgium | 0.669 | 0.226 | 31.7894 | 14.6632 |
Czech Republic | 0.073 | 0.012 | 1.8866 | 0.5357 |
Denmark |
1.074
|
0.805
| 58.7760 |
56.4983
|
Finland | 0.834 | 0.412 | 38.6939 | 25.9555 |
France | 0.627 | 0.288 | 28.8312 | 17.6038 |
Germany | 0.487 | 0.186 | 22.0462 | 12.6406 |
Greece | 0.113 | 0.001 | 3.4676 | 0.2906 |
Hungary | 0.160 | 0.143 | 4.0850 | 4.9831 |
Ireland | 0.519 | 0.316 | 27.5164 | 23.3791 |
Italy | 0.253 | 0.021 | 10.6141 | 1.1617 |
Netherlands | 0.839 | 0.230 | 42.1471 | 16.6361 |
Norway | 0.887 | 0.320 |
59.6494
| 31.2469 |
Portugal | 0.340 | 0.117 | 10.9076 | 5.1094 |
Spain | 0.418 | 0.063 | 15.6522 | 3.1230 |
Sweden |
1.259
|
0.475
|
66.5008
|
33.3397
|
Switzerland | 0.751 |
0.453
| 48.2713 |
39.0096
|
UK |
1.265
| 0.293 |
61.5254
| 17.5107 |
3.2 Methodology
4 Results and discussion
Model | 1 | 2 | 3 | “Sniff-test” | 4 | 5 | 6 |
---|---|---|---|---|---|---|---|
Dependent variable | VC activity | VC activity | VC activity | VC activity | FI index | VC activity | VC activity |
FI index |
0.014 ***
|
0.015 ***
|
0.017 ***
|
0.015 ***
|
0.018 ***
| ||
[0.003]
|
[0.003]
|
[0.004]
|
[0.005]
|
[0.005]
| |||
(0.000)
|
(0.003)
|
(0.000)
|
(0.002)
|
(0.001)
| |||
RFI index | − 0.004 | ||||||
[0.003] | |||||||
(0.251) | |||||||
Employment protection | − 0.000 | − 0.000 | |||||
[0.000] | [0.000] | ||||||
(0.703) | (0.969) | ||||||
Taxation |
− 0.001 **
|
− 0.001 **
| |||||
[0.001]
|
[0.000]
| ||||||
(0.014)
|
(0.014)
| ||||||
Investor protection | 0.011 | 0.012 | |||||
[0.007] | [0.007] | ||||||
(0.106) | (0.109) | ||||||
Social capital |
0.007 **
|
0.673 ***
| − 0.002 | − 0.001 | |||
[0.003]
|
[0.124]
| [0.004] | [0.004] | ||||
(0.030)
|
(0.000)
| (0.572) | (0.592) | ||||
IPO volume | 0.678 | 0.664 | 0.716 | 0.867 | − 0.467 | 0.672 | 0.706 |
[0.633] | [0.533] | [0.537] | [0.527] | [1.731] | [0.532] | [0.535] | |
(0.191) | (0.533) | (0.177) | (0.106) | (0.543) | (0.195) | (0.188) | |
M&A volume |
0.319 ***
|
0.316 ***
|
0.328 ***
|
0.336 ***
| − 0.418 |
0.321 ***
|
0.332 ***
|
[0.108]
|
[0.109]
|
[0.109]
|
[0.113]
| [0.365] |
[0.109]
|
[0.111]
| |
(0.004)
|
(0.109)
|
(0.003)
|
(0.003)
| (0.282) |
(0.004)
|
(0.004)
| |
GDP growth |
0.004 ***
|
0.004 ***
|
0.004 ***
|
0.005 ***
|
0.037 ***
|
0.004 ***
|
0.004 ***
|
[0.001]
|
[0.001]
|
[0.001]
|
[0.001]
|
[0.012]
|
[0.001]
|
[0.001]
| |
(0.000)
|
(0.001)
|
(0.000)
|
(0.000)
|
(0.001)
|
(0.000)
|
(0.000)
| |
Inflation | 0.001 | 0.001 | 0.001 | 0.001 | 0.022 | 0.001 | 0.001 |
[0.001] | [0.001] | [0.001] | [0.001] | [0.019] | [0.001] | [0.001] | |
(0.326) | (0.001) | (0.220) | (0.516) | (0.286) | (0.339) | (0.240) | |
Technological opportunity |
− 0.000 ***
|
− 0.000 ***
|
− 0.000 ***
|
− 0.000 ***
| − 0.000 |
− 0.000 ***
|
− 0.000 ***
|
[0.000]
|
[0.000]
|
[0.000]
|
[0.000]
| [0.000] |
[0.000]
|
[0.000]
| |
(0.000)
|
(0.000)
|
(0.000)
|
(0.003)
| (0.519) |
(0.000)
|
(0.000)
| |
Internet bubble |
0.044 ***
|
0.044 ***
|
0.044 ***
|
0.045 ***
| 0.033 |
0.044 ***
|
0.044 ***
|
[0.013]
|
[0.013]
|
[0.013]
|
[0.013]
| [0.056] |
[0.013]
|
[0.013]
| |
(0.001)
|
(0.013)
|
(0.001)
|
(0.001)
| (0.527) |
(0.001)
|
(0.001)
| |
Financial crisis |
− 0.044 ***
|
− 0.044 ***
|
− 0.043 ***
|
− 0.047 ***
|
− 0.075 *
|
− 0.044 ***
|
− 0.043 ***
|
[0.009]
|
[0.009]
|
[0.009]
|
[0.009]
|
[0.042]
|
[0.009]
|
[0.009]
| |
(0.000)
|
(0.009)
|
(0.000)
|
(0.000)
|
(0.082)
|
(0.000)
|
(0.000)
| |
French legal system | 0.002 | − 0.002 | 0.024 | − 0.007 |
− 0.740 ***
| 0.002 | 0.024 |
[0.021] | [0.022] | [0.025] | [0.023] |
[0.253]
| [0.021] | [0.024] | |
(0.903) | (0.022) | (0.370) | (0.758) |
(0.003)
| (0.876) | (0.424) | |
German legal system | − 0.012 | − 0.017 | 0.006 | − 0.012 | − 0.199 | − 0.012 | 0.005 |
[0.022] | [0.022] | [0.027] | [0.023] | [0.360] | [0.021] | [0.026] | |
(0.634) | (0.022) | (0.852) | (0.603) | (0.565) | (0.617) | (0.936) | |
Scandinavian legal system | 0.029 | 0.022 | 0.029 | 0.034 | − 0.001 | 0.030 | 0.030 |
[0.027] | [0.025] | [0.027] | [0.026] | [0.227] | [0.026] | [0.022] | |
(0.297) | (0.025) | (0.229) | (0.197) | (0.982) | (0.252) | (0.226) | |
Constant | 0.019 | 0.025 | − 0.039 | 0.016 | 0.040 | 0.020 | − 0.037 |
[0.020] | [0.019] | [0.061] | [0.020] | [0.130] | [0.021] | [0.061] | |
(0.375) | (0.019) | (0.537) | (0.455) | (0.879) | (0.352) | (0.599) | |
Observations | 318 | 318 | 318 | 318 | 318 | 318 | 318 |
Number of countries | 18 | 18 | 18 | 18 | 18 | 18 | 18 |
Wald chi2 | 424.85 | 261.03 | 686.22 | 552.00 | 89.74 | 732.65 | 691.77 |
Prob > chi2 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 |