Section: The Role of Corporate Governance
Source - http://finance.wharton.upenn.edu/~allenf/download/Vita/ventcap.pdf
TL;DR - Creditor rights and rule of law influence the level of VC activity.
Helpfulness - 3
Tags - governance, venture capital, creditor rights, rule of law, GDP
- What variables influence the level of VC activity?
- Direct governance structures between investors and VCs and between VC and portfolio companies are not publicly available.
- Creditor rights and the rule of law are significant determinants of levels of VC activity across countries.
- As suggested by empirical studies, economic growth, financial development, governance and investor protection are correlated.
- A well-developed stock market increases the chance of a successful exit (IPO).
- Because VC claims more closely resemble creditor claims than equity claims, creditor protection is more important for VC activities than rule of law.
- Economic development, measured by GDP per capita, is positively correlated with the level of VC investments.
- Higher past real GDP growth encourages more early stage investment.
- Larger market capitalization as a percentage of GDP encourages more later stage investment since the exit channel becomes more important for later stages.
- Better creditor protection is associated with a higher percentage of funds allocated to the medical and biotechnology industry.
- Higher GDP per capita and past real GDP growth are associated with higher allocation to High-Tech industry.
- Lower GDP per capita is associated with higher allocation to Non-Tech industries.
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