Venture Capital

EMEMAR-00478; No of Pages 29
Emerging Markets Review xxx (2016) xxxxxx
Contents lists available at ScienceDirect
Emerging Markets Review

journal homepage: www.elsevier.com/locate/emr
Determinants of venture capital investments in

emerging markets
Alexander Peter Groh a, Johannes Wallmeroth a,b,
a
b
EMLYON Business School, Research Centre for Entrepreneurial Finance, 23 Avenue Guy de Collongue, 69134, Ecully, France
University of Lyon 3, 1 rue de Universit, 69007, Lyon, France
a r t i c l e
i n f o
Article history:
Received 22 May 2015
Received in revised form 17 November 2015
Accepted 25 August 2016
Available online xxxx
JEL classication:
C23
F21
G23
G24
O16
O57
a b s t r a c t
Jeng and Wells (2000) initialized the examination of venture capital
(VC) determinants across countries. Meanwhile, we enlarge their
scope using aggregated VC funding in 118 countries, 78 being considered emerging markets, using panel data from 2000 to 2013. We show
that M&A activity, legal rights and investor protection, innovation, IP
protection, corruption and also corporate taxes and unemployment
have impact. We reveal the economic magnitude and direction of impact of the determinants to be different for the two country categories
for several parameters, enhancing previous research by emphasizing
that VC investment drivers can be different for developed and developing countries.
2016 Elsevier B.V. All rights reserved.
Keywords:
Emerging markets
Venture capital
Venture capital determinants
1. Introduction
Venture capital has established its role in the economy several decades ago and does not only levy nancial, but also non-nancial capital. Gompers and Lerner (1998) describe venture capital as a means of providing capital to rms who may not have the necessary independent nancial means, thus requiring external
nancing. It acts as an intermediary between lenders and borrowers for markets where these two have to
incur costs to come together (Jeng and Wells, 2000). Venture capitalists are said to be active investors, pursuing such activities as monitoring and inuencing strategic decisions of the rm by such means as controlling
Corresponding author at: EMLYON Business School, Research Centre for Entrepreneurial Finance, 23 Avenue Guy de Collongue, 69134
Ecully, France.
E-mail addresses: groh@em-lyon.com (A.P. Groh), wallmeroth@em-lyon.com (J. Wallmeroth).
http://dx.doi.org/10.1016/j.ememar.2016.08.020
1566-0141/ 2016 Elsevier B.V. All rights reserved.
Please cite this article as: Groh, A.P., Wallmeroth, J., Determinants of venture capital investments in
emerging markets, Emerg. Mark. Rev. (2016), http://dx.doi.org/10.1016/j.ememar.2016.08.020
A.P. Groh, J. Wallmeroth / Emerging Markets Review xxx (2016) xxxxxx
rights and holding board seats (Gompers and Lerner, 1998). A venture capitalist's ability to add value is further
reected by the duration of the investment (Cumming and Johan, 2006). Although venture capitalism was
founded in the United States, many countries have followed suit, turning venture capital into a global
phenomenon (see e.g., Gompers and Lerner, 1998; Flix et al., 2007; Cumming et al., 2010a).
The internationalization of venture capital has prompted it to be dened slightly differently in some markets, as Jeng and Wells (2000) indicate in their paper by dening venture capital in US terms, rather than
European terms. Even though these country or region related changes exist, it is found that even in countries
with bank-centered markets, a differentiation made by Black and Gilson (1998), banks that are legally entitled
to hold equity stakes in venture startups, nonetheless refrain from doing so in most cases. As indicated by Jeng
and Wells (2000), this is brought on by the problematic of corporate governance. Therefore, even in bankcentered markets, venture capital lls the nancing gap that exists for venture startups. Further research in
related elds has shown that the structures taken by venture nance also vary and that there is not one
optimal structure (such as using convertible preferred equity) (Cumming, 2005). In other words, venture
capital is a globalized concept and its structures can vary within as well as between countries.
Venture capital has been a much studied subject which, nevertheless, still requires further investigation.
Amongst these empirical expeditions is the question of what factors attract venture capital investments
and how a factor may affect the investments of a country in terms of venture capital. The studies which are
in existence apply and evaluate a multitude of variables which are said to be responsible for attracting and increasing or also decreasing these investments into a country. However, for the most part, these studies assess
country investments in developed economies such as Europe (see e.g., Flix et al., 2007; Cherif and Gazdar,
2011) or when undeveloped nations are included do not focus on these specically. It is the objective of
this paper to draw on a global range of countries whilst evaluating determinants that pose as a particular
driving force for venture capital investments into undeveloped countries. In this process, the effects of a
range of previously examined variables are considered, such as the effects of different divestments types,
corporate taxes, and legal aspects. However, less examined variables are also considered: investor protection
as well as bribery and corruption.
Since the beginning of the century, the behavior of venture capital investments has experienced an interesting shift: the amount of venture capital investments into emerging markets has risen. The data shows that
in the year 2000, venture capital investments into emerging markets totaled USD 3.25 billion. This represents
a ratio of 97.6% of the sum of venture capital investments that were placed in what can be classied as developed markets. This gure decreases to 79.2% by 2013. Accordingly, the share of venture capital investments
into emerging markets rose from 2.4% in 2000 to 20.8% in 2013.1 Total investments into emerging markets
in the year 2013 summed to USD 9.8 billion. This development gives credence to the fact that exploring
venture capital determinants specically in the setting of emerging markets is worth pursuing and will likely
grow in signicance in the years to come.
The fundamental objective of this investigation lies in extending the research performed by Jeng and Wells
(2000). It does so in its pursuit of identifying and analyzing venture capital investment determinants,
however, in more markets across the globe as well as with an alternative selection of variables. To this end,
this paper extends contemporary literature in that it analyzes a global spectrum of nations on various levels of
development. These determinants are not broken down to specic continents, regions, or groups of countries,
however. Even though the elds herewith investigated still yield much opportunity for succeeding research,
our ndings provide initial insight into these elds on cross-cultural terrain and enable subsequent research
to specify its research questions further. Our ndings indicate that for the majority of the variables analyzed,
we nd concurring evidence of signicance in determining venture capital investments in developed markets.
The added value that nonetheless exists lies in the global reach of the sample. The primary contribution, however, lies in the ndings specic to emerging markets. We show that the direction and magnitude of variables have
varying effects: weakening, strengthening, and solely an effect in emerging markets.
Furthermore, literature nds that emerging markets have weaker legal and institutional regimes in place
compared to developed economies. For instance, the average score of the Transparency International's
corruption index for emerging markets is 3.33 whereas for developed markets it is 7.04 the difference in
means t-test p-value being statistically signicant. Such variations ought to have an inuence on how policy is
created and how practitioners act in the market and could have an inuence on the determinants themselves.
1
Please refer to Fig. 1 for further details.
2.2%
1.8%
2.1%
2.6%
3.5%
4.1%
10.5%
12.0%
12.1%
14.9%
15.7%
10.8%
20.8%
18.4%
90%
2.4%
100%
80%
70%
60%
50%
97.6%
97.8%
98.2%
97.9%
97.4%
96.5%
95.9%
89.5%
88.0%
87.9%
85.1%
40%
89.2%
84.3%
79.2%
30%
20%
10%
0%
2000
2001
2002
2003
2004
2005
2006
% VC Developed
2007
2008
2009
2010
2011
2012
2013
Difference
% VC Undeveloped
Fig. 1. Venture capital investments in developed versus undeveloped countries (in % of total).
In turn, country-level specic variables should have different effects in contrast to developed economies. This
line of thought is a key motivational aspect of this paper as it brings additional importance for practitioners
and policy makers when conducting business in emerging markets. These distinctions in structures should subsequently cause a different policy and practitioner approach (See Table 1).
Throughout the literature, variations of venture capital are continuously stated to vary on a country level
(see e.g., Black and Gilson, 1998; Jeng and Wells, 2000; Flix et al., 2007). Most of these variations can be distinguished into two-fold differences. In other words, is a market stock-market-centered or bank-centered?
Other papers have evaluated differences in legality (Cumming et al., 2010a) or whether funds originate
from a private or a public nature and what the consequences of this are (Leleux and Surlemont, 2003). This
paper seeks to differentiate countries on a developmental level.
The remainder of this paper is structured as follows: part two summarizes in detail the existent literature
as well as the literature on the variables herein investigated. Part three presents a description of the variables
as well as the summary statistics of the data. Part four outlines the statistical methodology and explains our
empirical analysis. Part ve concludes this paper.
2. Literature review
In the following section, we provide detail of the determinants according to contemporary literature. As
mentioned above, the literature is limited, leaving much room for further investigative proceedings. Throughout the literature review, it was found that some papers play a more direct role compared to others. In order to
shorten the discussion thereof, we provide a tabular view of the most directly related papers in Table 2. Other
noteworthy papers are also briey discussed below in order to provide additional insight into variables as well
as related ndings.
The papers, found in Table 2, by Cherif and Gazdar (2011); Flix et al. (2007); Romain and van
Pottelsberghe de la Potterie (2004); Leleux and Surlemont (2003); Mart and Balboa (2001), and Gompers
and Lerner (1998) focus on specic geographic regions such as Europe, OECD, or the USA. Cumming et al.
(2010a) as well as Nahata et al. (2014) provide more global insight through their examination of 39 and 30
countries, respectively. This is again a sign that global studies on venture capital determinants is still underway and much examination is still to be performed.
In terms of additional literature that also plays an essential role in understanding determinants of venture
capital, papers were found that examine specic returns, investments, or place more of a focus on governance,
bribery and corruption, or innovation. These papers include Cumming et al. (2010b), who assess private
equity returns in Asia for 20 countries, applying a sample of 750 transactions between 1989 and 2009, and
nd that legal protections are signicant in determining private equity returns for the Asian markets.
Specically, they nd that the quality of the legal system is positively related to returns whilst corruption is negatively related. Their paper is the rst to analyze the relationship between legal protection, corruption, and private equity returns in Asia and their research of corruption shows that fund managers have the ability to mitigate
the impact of corruption. Furthermore, their ndings indicate that private equity returns are higher in countries
when corruption is higher as well, even when statistically controlling for the existing legal system. Their
Table 1
Variable averages for emerging markets and developed markets.
M&A Investment Volume [% of GDP]

Exports [% of GDP]
Corporate Tax [#]
Unemployment Rate [%]
Disclosure Index [#]
Shareholder Suits Index [#]
Legal Rights Index [#]
Bribing & Corruption Index [#]
Innovativeness Index [#]
IP Protection [#]
Emerging market
Developed market
T-test difference in means P-value
0.02
0.36
2.58
12.59
0.53
0.54
0.51
3.33
2.61
3.17
0.05
0.56
2.64
6.97
0.63
0.64
0.65
7.04
4.68
5.14
0.00
0.00
0.25
0.00
0.00
0.00
0.00
0.00
0.00
0.00
explanation for this is that fund managers are able to produce organizational change, which brings about the
ability to lessen the cost of corruption.
Another well-known paper by La Porta et al. (2000) assess the investor protection and legal structures and
how it is a superior indicator of understanding corporate governance than distinguishing between bank or
market centered economies. Their overall research, extending over several papers, has used various indices,
such as a disclosure index (see e.g. La Porta et al., 1998, La Porta et al., 2006). Their ndings are that legal systems are diverse around the world and play a signicant role, such as for example common law countries tend
to provide more investor protection than civil law countries. Research performed by La Porta et al. (1998,
2000, 2006) is a major contribution towards understanding the role of investor protection, the inuence of
a country's legal system, and corporate governance. The variables in terms of these aspects which are applied
throughout this paper are based on research by these authors and include measurements of shareholder suits
(Djankov et al., 2008b) as well as legal rights (Djankov et al., 2006).
Even though the aforementioned papers detail the ndings of numerous determinants of venture capital
in various economies, we wish to include additional variables in this paper namely bribery and corruption
as well as innovation and intellectual property protection. Furthermore, literature was reviewed in regards to
overall country-level variables that may also play a role which had not yet been assessed in existing literature.
The following section therefore summarizes a mixture of literature in this eld.
In terms of bribery and corruption, not much literature has been found on their effects in emerging
markets, or at least not in terms of the effects on venture capital (Cumming et al., 2013). As mentioned
above, Cumming et al. (2010b) have been a forerunner in this eld, analyzing private equity returns in Asia
and controlling for legal protection and corruption. Nevertheless, we wish to present additional literature in
this eld. Hain et al. (2015) assess relational and institutional trust in cross-border venture capital investments for emerging markets, using China as a model. In their paper, it is stated that, although corruption
should have a negative impact on venture capital investments into a country, market-driven corruption
may actually have a positive impact. This would be the case for nations with rigid and inefcient legal
structures as it would most likely be found in emerging markets.
In terms of intellectual property, numerous papers have examined a sub-particle: innovation. In terms of
innovation, literature and recent studies utilize research and developments expenditures as a means to
measure the inuence on venture capital investments, the results of which have been mentioned earlier. In
this paper, focus is placed on an innovation index rather than R&D expenditures - R&D expenditures are an
element included in the index. This is done so for the reason that the innovation index is based on a country's
innovation, rather than the expenditures of rms. This in turn ought to help identify a country's aptitude
towards venture capital investments rather than the investment aptitude of the behavior of the rms within it.
In terms of innovation, numerous papers have examined the inuence of venture capital on innovation.
Literature shows varying results due to varying policies and regulation amongst different countries: Engel
and Keilbach (2007) show that innovative ventures are more likely to receive venture capital funding,
however, do not increase their innovative output post-investment compared to non VC-backed ventures.
VC-backed ventures, however, experience signicantly larger growth rates. Engel and Keilbach (2007)
argue that this growth rests on innovation from the pre-investment stage. Their paper goes further to show
that venture capitalists place importance on utilizing a venture's innovations so as to capitalize on it.
Kortum and Lerner (2000) and others do nd positive signicance of venture capital investing and patenting.
All in all, the innovation index thus ought to be able to capture whether a country has the ability to provide an
opportunity rich environment to foster further innovation to ventures. Should such an environment exist, it
subsequently attracts venture capital.
Following this pattern, it would be arguable that strong intellectual property protection ought to foster
venture capital investments. The aforementioned literature states that a country's ability to protect and enforce legal rules also fosters its innovation. Deducing from the ndings of Engel and Keilbach (2007),
protecting intellectual property ought to also provide attraction to venture capital investments as it partly
protects their investment rationale.
Literature reviewed in regards to additional country-level variables includes Armour and Cumming (2006) as
well as Cumming et al. (2013). Armour and Cumming (2006) assess entrepreneurial demand for venture capital
and nd that legal structures are equally important as stock market strength. Cumming et al. (2013) assess the
impact of entrepreneurship on macroeconomic indicators such as exports in percentage of GDP, unemployment,
and patents per population. They nd that positive inuences exist between entrepreneurship and these
Author(s)
Title
Data Sources
Country
Countries
Years
Including
EMs
Dependent variable(s)
Main ndings
Black and Gilson

(1998)
Venture capital
and the structure
of capital markets:
banks versus stock
markets
Venture Capital Journal

EVCA
Global
n/a
19921995
No
Capital contribution
Gompers and
Lerner (1998)
What Drives
Venture Capital
Fundraising?
Venture Economics,
Venture Capital Journal,
Private Equity Analyst
US
19721994
No
Commitments
VC Investments/million
residents
# of companies receiving VC
nancing
Fund raised
Log of fund size
Jeng and Wells

(2000)
The determinants
of venture capital
funding: evidence
across countries
The European Venture

Capital Journal, Asian
Venture Capital Journal,
The GIZA Group for Israel
Figures, Macdonald's and
Associates, and Venture
Economics
Global
21
19861995
No
VC investments w/o Gov't

Funds divided by GDP
VC investments divided by
GDP
Early stage investments w/o
Gov't Funds divided by GDP
Early stage investments
divided by GDP
PE new funds raised w/o Gov't
Funds
PE new funds raised
By using the US, Japan, and Germany as models, they

state that this market trait inuences the investment
behavior of venture capitalists who would be able to
exit an investment through an IPO, given a welldeveloped stock market. This is a fundamental differentiation due to the fact that certain countries demonstrate different investment behaviors: Namely,
venture capitalists may choose to divest through a
trade sale. This is said to be more typical, for example,
in the European markets. Labor market rigidities also
vary across countries, as Black and Gilson (1998) address. These are partly intertwined with the country's
culture and can therefore have varying effects on the
investments of venture capital and private equity.
By focusing on fundraising patterns, they identify
economic growth, research and development
expenditures, regulatory changes of pension funds,
capital gains taxes, and rm specic performance and
reputation to affect the demand of venture capital
fundraising. More specically, they exclaim that GDP
growth is a driver for venture capital investments.
They state that with an increase in economic growth,
entrepreneurs may be able to seize opportunities for
venture development which in turn leads to an
increase in demand for venture capital. Furthermore,
Gompers and Lerner (1998) state that a decrease in
prot tax would lead to an increase in venture capital.
Their empirical results also state that R&D
expenditures lead to an increase in venture capital
investments. These ndings are in line with those of
other researchers who have also evaluated these
variables on a broader, more international level.
Their ndings discuss the paramount importance of
IPOs and their effects on determining venture
capital investments. Their results, however, do nd
discrepancies with existing empirical results in that
they do not nd statistical signicance for GDP
growth. Their results also indicate that the stage of
the investment has different determinants.
Specically, they observe that early stage
investments are not statistically affected by IPOs,
whereas later stage investments are. The opposite
is found to be true of labor market rigidities. Here,
Table 2
Literature Review.
Determinants of
Private Equity
Fundraising in
Western Europe
EVCA Yearbooks, Spanish

Private Equity Survey
European
16
19911999
No
New funds raised
Leleux and
Surlemont
(2003)
Public versus
Private Venture
Capital: Seeding or
Crowding out? A
pan European
Analysis
EVCA, La Porta Database

on Legal Systems, Leleux
Database on
Macroeconomic variables
European
15
19901996
No
Percentage of VC funds
invested by public investors
Cumulative venture capital
funds raised
(continued on next page)
Mart and Balboa

(2001)
they are negatively affecting early stage

investments, however, later stage investments are
not affected. Their paper also uses a variable to
measure the nancial reporting standards, arguing
that the asymmetrical information can hinder
venture capital investments. With superior
nancial accounting measures in place, a venture
capitalist must perform less effort to collect and
monitor the information of a startup venture. Their
results nd statistical signicance for their
accounting standard variable, however, an
explanation for the negative coefcient is not given.
Their paper is also one that subjects itself to the
analysis of taxation as a determinant, at least to
some extent: they do not nd individual corporate
tax rates to be statistically signicant and therefore
do not include them in their regressions.
The results do not nd statistical signicance for IPO
divestments. Their explanation rests upon that of
Black and Gilson (1998) who state that IPO
divestments are related to a strong stock market
centered economy. Further, they nd that GDP
growth is not statistically signicant, concluding that
it is in line with the ndings of Jeng and Wells (2000).
Marti and Balboa (2001) conclude that the larger the
amount invested by fund managers, the easier it is for
fund managers to raise new funds in the future.
It is found that large involvement by public
participation correlate in a smaller venture capital
industry, however, their ndings show that they do
not mitigate private funds. They demonstrate that
public involvement appears to increase investments
of venture capital as a whole. In terms of a country's
legal structures, their paper adds to literature in that
they provide research that different legal systems
exist between countries and can have a signicant
inuence on the investments of venture capital
investments. They state that countries with a
common law structure were more successful at
raising funds than civil law structured countries. They
conclude that countries with low investor protection,
usually civil law countries such as France or Germany,
develop smaller venture capital markets. This nding
is in line with La Port et al. (1997). Leleux and
Surlemont (2003) conclude that it is the nature of
legal systems, rather than the enforcement, that fosters venture capital investments.
Author(s)
Title
Data Sources
Country
Countries
Years
Including
EMs
Main ndings
Romain and van

Pottelsberghe
de la Potterie
(2004)
The Determinants
of Venture Capital:
A Panel Data
Analysis of 16
OECD Countries
OECD, MSTI, EVCA
OECD
16
19902000
No
VC intensity (VC/GDP)
Flix et al. (2007)
The Determinants
of Venture Capital
in Europe Evidence Across
Countries
APCRI, EVCA Yearbooks
European
23
19922003
No
New fundraising for VC

investments divided by GDP
VC investment divided by GDP
Value of high-tech
Value of early stage
Cumming et al.
(2010a)
Legality and
Venture Capital
Governance
Around the World
CEPRES
Global
39
19712003
Yes
Probability receiving rst

lead investment for all seed,
start-up, early, and
expansion rms
The paper nds that GDP growth is signicant and

cyclically in line with venture capital investments.
Furthermore, they nd that the positive impact of
GDP growth is reduced in markets that have high
labor market rigidities. Additionally, they state that
corporate income tax has a negative effect on venture
capital. In terms of R&D investments, they relate that
the growth rate of R&D expenditures and the amount
of patents positively affect venture capital. Overall, it
is concluded that to assess venture capital in a
market, demand-side variables must be considered.
The paper shows that trade sales are statistically
signicant in inuencing venture capital in the
European venture capital markets. Drawing on conclusions of Flix (2005), they exclaim that trade sale
divestments are more expressive in the European
markets and thus have similar levels of signicance as
IPO divestments. When accounting for the stage of
investment, their ndings indicate that IPO divestments are statistically signicant in the later stage. In
terms of labor market rigidities, their ndings show
that they affect the early stage investments, but not
the later stage investments. This nding is in line with
that of Jeng and Wells (2000). Regarding variables also
tested in other empirical papers, they observe that
GDP growth is a signicant indicator for venture capital investments. Another element of the labor market,
the unemployment rate, has also been found to be
statistically signicant when it comes to the European
venture capital market. Their paper nds that the inuence of the unemployment rate is negatively significant to venture capital and argue that this nding is in
line with Hellmann (1998) who states that there exists
a link between the amount of entrepreneurs present in
an economy and the demand for venture capital. Flix
et al. (2007), however, do not nd statistical signicance for R&D expenditures, exclaiming that the variable used in their paper does not correctly measure
innovation and may have led to this result.
Their evidence shows that signicant impacts on
the governance structure of investments stem from
the differences in legal structures, legal origin, and
accounting standards. They demonstrate that more
Table 2 (continued)
Cherif and Gazdar

(2011)
What Drives
Venture Capital
Investments in
Europe? New
Results from a
Panel Data Analysis
EVCA Yearbooks
Europe
21
19972006
No
Early stage investments

divided by GDP
Funds raised divided by GDP
developed legal environments enable faster deal

screening and thus foster venture capital and private
equity investments. Further, they identify, in
alignment with Leleux and Surlemont (2003), that
countries such as France and Germany have slower
deal origination - thus legal origin is also found to
have a statistically signicant effect on venture capital. Additional effects are a higher likelihood of syndication and a decrease in co-investments due to
sophistication in legal and accounting standards. Also,
a lower likelihood of harmful co-investments was
found. The paper includes a legality index variable
which is composed of weighted averages of multiple
factors, one element being corruption. This index variable was found to support the idea that better legal
developments facilitate deal origination and decrease
the likelihood of entering potentially damaging coinvestments. This is especially interesting as corruption is a rare variable to be examined in terms of
venture capital investments and is thus drawing attention at this point. Furthermore, their paper concludes that country specic differences are not limited
to legal forms and economic development.
The paper shows that macroeconomic variables are
affecting venture capital investments. Specically,
GDP growth is a signicant indicator for venture
capital investments. Also, research and
development expenditures impact venture capital
investments. When accounting for divestments by
IPO, trade sale, or write-off, no statistical
signicance is found. This nding was maintained
when changing the dependent variable from early
stage venture capital investments to funds raised.
In one regression, the authors use an economic
freedom variable. Although they nd it to be
statistically signicant, they claim that it is quite a
general variable that needs to be unbundled. The
authors subsequently split this variable into its
subcomponents and nd that freedom from
corruption has a signicant and positive effect on
early stage investments. The authors state that this
is due to increases in cost of doing business and an
increase in uncertainty. Furthermore, they also nd
that research and development expenditures
impact venture capital investments.
Probability receiving rst

lead investment for seed,
start-up and early rms only
Syndication (different VC
funds, different VC rms,
investing in the same
entrepreneurial rm)
Co-investment (different VC
funds, same VC rm,
investing in the same
entrepreneurial rm)
Board seats
Security with periodic cash
ows and upside

9
10
Author(s)
Title
Data Sources
Country
Countries
Years
Including
EMs
Main ndings
Nahata et al.
(2014)
Success in Global
Venture Capital
Investing: Do
Institutional and
Cultural
Differences
Matter?
SDC VentureXpert & AVCJ
Global
30
19962002
Yes
Hazard of VC exit
Findings include a positive inuence on venture

capital investment success when there is cultural
distance between the country of the venture
capitalist and the portfolio company. The paper
shows that cultural differences promote ex ante
screening which leads to improved venture capital
performance. Further, a developed stock market is
found to positively inuence venture capital
performance and is thus in line with the theory of
Black and Gilson (1998). Also, it is found that local
co-investors increase likelihood of success. A brief
analysis specic for determinants of emerging
markets states that the legal index, cultural
distance, and stock market development are
signicant predictors of venture capital success for
both developed and emerging economies. For
brevity, further details of these ndings are
omitted.
Table 2 (continued)
11
Table 3
Summary of countries.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of developed
countries
Number of undeveloped
countries
Total
33
34
34
35
35
35
36
36
36
39
40
42
40
40
85
84
84
83
83
83
82
82
82
79
78
76
78
78
118
118
118
118
118
118
118
118
118
118
118
118
118
118
indicators with a negative inuence for unemployment. An additional country-level variable which these two
papers yield is exports in percentage of GDP, which makes a valid determinant for venture capital also.
3. Data and variables
This paper assesses venture capital determinants in 118 countries spanning the years 2000 to 2013. The
data is pooled from an array of sources and data is used for these years due to availability of measurements.
Further details regarding the origin of the data is provided in Tables 6 and 7. We also provide a full table in
the appendix, listing each country along with the average value of each variable for the investigative time
period from 2000 to 2013 for further information.
As particular attention is given to the determinants in undeveloped countries, a selection of these
countries was made according to the World Bank guidelines which identify a country with a certain gross
national income per capita as a developing nation. The threshold is adapted on a regular basis. To further
check the credibility of this selection, it was found that neither the rankings of the International Monetary
Fund nor the International Statistical Institute differed signicantly. The World Bank segregates nations into
four categories: low-income, lower-middle, upper-middle, as well as high income nations. The rst three
categories, namely low-income, lower-middle, and upper-middle, are considered undeveloped. The table
below indicates the amount of developed and developing nations in each year (See Table 3).
As we can see, there is a change from 33 developed nations in 2000 to 40 in 2013, still leaving 78 countries
to still be classied as emerging in 2013. Furthermore, each variable is interacted with the undeveloped
country dummy variable to provide an undeveloped country interaction term for the regressions.
3.1. Variable descriptions
The variables chosen to be analyzed are summarized in Table 4, with a correlation table provided in
Table 5. The dependent variable, Venture Capital Investments, is the sum of venture capital investments in a
given country in a given year divided by the GDP. This choice of variable is in line with Jeng and Wells
(2000) as well as numerous subsequent research publications.
According to Acs and Audtresch (1994), macroeconomic variables have been said to inuence the entrepreneurial activity of a country. Accordingly, corporate taxes as well as unemployment have been chosen. Through
Table 4
Summary Statistics.
Variable
Measurement
Observations
Mean
Median
Standard deviation
Min
Max
Venture Capital Investments

M&A Investment Volume
Exports
Corporate Tax
Unemployment Rate
Disclosure Index
Shareholder Suits Index
Legal Rights Index
Bribery & Corruption Index
Innovation Index
IP Protection
[% of GDP]
[% of GDP]
[% of GDP]
[#]
[%]
[#]
[#]
[#]
[#]
[#]
[#]
1652
1652
1652
1652
1652
1652
1652
1652
1652
1652
1652
0.041
0.027
0.425
2.601
10.839
0.561
0.567
0.554
4.492
3.255
0.378
0.000
0.012
0.352
2.800
8.000
0.600
0.600
0.600
3.700
3.008
0.350
0.133
0.049
0.313
0.875
9.577
0.243
0.217
0.249
2.212
1.351
0.119
0.000
0.000
0.000
0.000
0.100
0.000
0.100
0.000
0.400
0.367
0.164
1.744
1.004
2.303
5.500
57.700
1.000
1.000
1.200
9.900
8.000
0.648
12
Table 5
Correlation table.
M&A Investment Volume

Exports
Corporate Tax
Unemployment Rate
Disclosure Index
Shareholder Suits Index
Legal Rights Index
Bribing & Corruption Index
Innovativeness Index
IP Protection
[% of GDP]
[% of GDP]
[#]
[%]
[#]
[#]
[#]
[#]
[#]
[#]
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
1.00
0.32
0.02
-0.15
0.16
0.17
0.19
0.41
0.31
0.39
1.00
-0.23
-0.20
0.16
0.15
0.22
0.37
0.31
0.33
1.00
-0.01
-0.10
-0.02
-0.21
-0.01
0.04
0.09
1.00
-0.18
0.03
-0.01
-0.27
-0.31
-0.30
1.00
0.12
0.21
0.26
0.32
0.28
1.00
0.47
0.29
0.22
0.23
1.00
0.37
0.34
0.32
1.00
0.79
0.90
1.00
0.79
1.00
the review of the aforementioned additional literature on the impact of entrepreneurship and legal determinants
on venture capital (Armour and Cumming, 2006; Cumming et al., 2014), another country-level variable has been
chosen for testing: exports of the respective country. This variable is also measured in terms of the country's GDP
and it is found that entrepreneurship has a positive and signicant impact on exports in percent of GDP. Therefore, an increase in exports per GDP ought to also attract more venture capital. Literature further indicates that
empirical research has more often than not included some measurement of the capital market characteristics of
a country. Given a typical venture capitalist investment management structure, it is generally found that investments have a duration of circa 3 years (see e.g. Cumming, 2008; Cumming and Johan, 2006; Cumming et al.,
2006). Given the investment fund's objective of generating a return on its investment, the fund pursues an
exit of the investment. This is most commonly done through an IPO or a trade sale. As the literature shows, however, these two ways of divesting are observed differently in varying regions of the world. As indicated by Black
and Gilson (1998), a market trait inuences the investment behavior of venture capitalists who would be able to
exit an investment through an IPO: a well-developed stock market. This is a fundamental differentiation due to
the fact that certain countries demonstrate a different investment behavior: namely, venture capitalists may
choose to divest through a trade sale. Cumming et al. (2006), however, state in their paper that a higher legal
quality is actually a superior measurement when it comes to assessing the ability of facilitating venture capital
backed IPOs, as opposed to the stock market development. As stated earlier, though, much of the contemporary
literature agrees that nations such as can be found in Europe are much more likely to utilize trade sale divestments (Black and Gilson, 1998; Flix, 2005; Flix et al., 2007; Mart and Balboa, 2001). For the purpose of this
paper, and as we seek to pursue the determinants of venture capital investments into emerging markets, we
choose a trade sale variable. We do so for the reason that, even if a developing country may seek to pursue
the market structure that is stock market centered, its stock market will not have been fully developed. Our rationale lies in the fact that markets such as the US and Europe, both of whom have high quality legal structures in
place, still have opposing natures when it comes to venture capital investments exits. A market in which trade
sales can ourish is arguably easier to establish and thus a better variable across the array of countries we are
investigating. The trade sale variable, M&A Investment Volume, is measured as the volume of M&A activity in a
country in a given year divided by GDP. Even though we consider its counterpart, an IPO investment volume variable measured in the same way as the M&A variable, to be inuential as well, which is a view supported by
previous research, the IPO investment volume variable did not show statistical signicance and we thus do
not report these ndings in this paper.
Another important element of venture capital determinants is the existent taxation in a country. Although
literature states that taxation is inuential on entrepreneurial activity (Djankov et al., 2008a; Bruce and
Gurley, 2005), anomalies exist as countries with high corporate tax rates still have high entrepreneurial
activity as well as signicant venture capital investments. We therefore assess the impact of corporate taxes
on the investments of venture capital investments. The variable Corporate Tax measures the highest marginal
Table 6
Dependent variable descriptions.
Indicators
Dimension Explanation
Venture Capital
Investments
[% of GDP]
Source(s)
This variable represents the sum of venture capital investments into a respective Thomson
country for a respective year divided by the GDP
One Banker
13
Table 7
Independent variable descriptions.
Indicators
Source(s)
M&A Investment
Volume
[% of GDP]
Thomson One Banker
Exports
[% of GDP]
Corporate Tax
[#]
Disclosure Index
[#]
Legal Rights Index
[#]
Transaction Value Excluding Liabilities Assumed: Transaction Value

minus the value of any liabilities agreed to be assumed in the
transaction + Straight Debt + Short-term Debt + Preferred Equity Cash, divided by the GDP
Exports of goods and services represent the value of all goods and
other market services provided to the rest of the world. They include
the value of merchandise, freight, insurance, transport, travel,
royalties, license fees, and other services, such as communication,
construction, nancial, information, business, personal, and
government services. They exclude compensation of employees and
investment income (formerly called factor services) and transfer
payments. Data are in current U.S. dollars.
Highest marginal tax rate (corporate rate) is the highest rate shown
on the schedule of tax rates applied to the taxable income of
corporations, scaled.
The extent of disclosure index has ve components:
World Bank
World Bank, World

Development
Indicator
Doing Business
(i) what corporate body can provide legally sufcient approval for
the transaction. A score of 0 is assigned if it is the CEO or the
managing director alone; 1 if the board of directors or shareholders
must vote and Mr. James is permitted to vote; 2 if the board of
directors must vote and Mr. James is not permitted to vote; 3 if
shareholders must vote and Mr. James is not permitted to vote.
(ii) whether immediate disclosure of the transaction to the public, the
regulator or the shareholders is required. A score of 0 is assigned if no
disclosure is required; 1 if disclosure on the terms of the transaction but
not Mr. James's conict of interest is required; 2 if disclosure on both the
terms and Mr. James's conict of interest is required.
(iii) whether disclosure in the annual report is required. A score of 0 is
assigned if no disclosure on the transaction is required; 1 if disclosure on
the terms of the transaction but not Mr. James's conict of interest is
required; 2 if disclosure on both the terms and Mr. James's conict of
interest is required.
(iv) whether disclosure by Mr. James to the board of directors is
required. A score of 0 is assigned if no disclosure is required; 1 if a
general disclosure of the existence of a conict of interest is required
without any specics; 2 if full disclosure of all material facts relating to
Mr. James's interest in the BuyerSeller transaction is required.
(v) whether it is required that an external body, for example, an external
auditor, review the transaction before it takes place. A score of 0 is
assigned if no; 1 if yes.
This variable has been rescaled.
Doing Business
Two case scenarios are used to determine the scope of the secured
transactions system, involving a secured borrower, the company
ABC, and a secured lender, BizBank.
* Any business may use movable assets as collateral while keeping
possession of the assets, and any nancial institution may accept
such assets as collateral.
(i) The law allows a business to grant a non possessory security right
in a single category of revolving movable assets (such as accounts
receivable or inventory), without requiring a specic description of
the secured assets.
(ii) The law allows a business to grant a non possessory security right
in substantially all of its assets, without requiring a specic
description of the secured assets.
(iii) A security right may extend to future or after-acquired assets
and may extend automatically to the products, proceeds or
replacements of the original assets.
14
Table 7 (continued)
Indicators
Shareholder Suits
Index
[#]
Source(s)
(iv) General description of debts and obligations is permitted in

collateral agreements and in registration documents, so that all types
of obligations and debts can be secured by stating a maximum rather
than a specic amount between the parties.
(v) A collateral registry is in operation that is unied geographically
and by asset type and that is indexed by the name of the grantor of a
security right.
(vi) Secured creditors are paid rst (for example, before general tax
claims and employee claims) when a debtor defaults outside an
insolvency procedure.
(vii) Secured creditors are paid rst (for example, before general tax
claims and employee claims) when a business is liquidated.
(viii) Secured creditors are not subject to an automatic stay or
moratorium on enforcement procedures when a debtor enters a
court supervised reorganization procedure.
(ix) The law allows parties to agree in a collateral agreement that the
lender may enforce its security right out of court. This variable has
been rescaled.
Doing Business
The ease of shareholder suits index has 6 components.
(i) What range of documents is available to the shareholder plaintiff
from the defendant and witnesses during trial. A score of 1 is assigned
for each of the following types of documents available: information that
the defendant has indicated he intends to rely on for his defense;
information that directly proves specic facts in the plaintiff's claim; any
information relevant to the subject matter of the claim; and any
information that may lead to the discovery of relevant information.
(ii) Whether the plaintiff can directly examine the defendant and
witnesses during trial. A score of 0 is assigned if no; 1 if yes, with prior
approval of the questions by the judge; 2 if yes, without prior approval.
(iii) Whether the plaintiff can obtain categories of relevant documents
from the defendant without identifying each document specically. A
score of 0 is assigned if no; 1 if yes.
(iv) Whether shareholders owning 10% or less of the company's share
capital can request that a government inspector investigate the
BuyerSeller transaction without ling suit in court. A score of 0 is
assigned if no; 1 if yes.
(v) Whether shareholders owning 10% or less of the company's share
capital have the right to inspect the transaction documents before ling
suit. A score of 0 is assigned if no; 1 if yes.
(vi) Whether the standard of proof for civil suits is lower than that for a
criminal case. A score of 0 is assigned if no; 1 if yes.
The index ranges from 0 to 10, with higher values indicating greater
powers of shareholders to challenge the transaction. In Greece, for
example, the plaintiff can access documents that the defendant intends
to rely on for his defense and that directly prove facts in the plaintiff's
claim (a score of 2). The plaintiff can examine the defendant and witnesses during trial, though only with prior approval of the questions by
the court (a score of 1). The plaintiff must specically identify the
documents being sought (for example, the BuyerSeller purchase
agreement of July 15, 2006) and cannot just request categories (for
example, all documents related to the transaction) (a score of 0). A
shareholder holding 5% of Buyer's shares can request that a government
inspector review suspected mismanagement by Mr. James and the CEO
without ling suit in court (a score of 1). And any shareholder can
inspect the transaction documents before deciding whether to sue (a
score of 1). The standard of proof for civil suits is the same as that for a
criminal case (a score of 0). Adding these numbers gives Greece a score
of 5 on the ease of shareholder suits index. This variable has been
rescaled.
15
Table 7 (continued)
Indicators
Bribing & Corruption

Index
[#]
Innovation Index
[#]
Source(s)
Transparency
This index describes the overall extent of corruption (frequency
International
and/or size of bribes) in the public and political sectors. The index
ranges from 0 to 10. Countries where bribing and corruption cases
are frequent receive a low rating score. This variable has been
rescaled to range from 0 to 10.
The model uses a combination of objective data drawn from a variety of INSEAD
public and private sources such as the World Bank, International
Telecommunications Union (e.g. university enrollment rates, GDP
growth rates, the level of penetration of new technologies) and
subjective data drawn from the World Economic Forum's annual
Executive Opinion Survey. The latter helps to capture concepts for which
objective (or hard) data are typically unavailable.
This data, despite its subjective nature, is crucial to an adequate
understanding of many essential factors underlying a nation's or region's
innovative performance. Examples of the latter include concepts such as
the quality of corporate governance, the overall excellence of scientic
institutions and the quality of intellectual property rights protections.
The framework groups the eight pillars of innovation into two
categories: Inputs and Outputs.
The ve Input pillars:
(i) Institutions and Policies
(ii) Human Capacity
(iii) Infrastructure
(iv) Technological Sophistication
(v) Business Markets and Capital
These represent aspects which enhance the capacity of a nation to
generate ideas and leverage them for innovative products and services.
The three Output pillars:
(i) Knowledge
(ii) Competitiveness
(iii) Wealth
These represent the ultimate benets of innovation for a nation - more
knowledge creation, increased competitiveness and greater wealth
generation.
Each pillar of the GII model is measured by a number of quantitative and
qualitative variables. The averaged scores for the Input and Output pillars
together give an overall score - the Global Innovation Index.
Calculating the GII
The Global Innovation Index for any given country is calculated in the
following manner:
(i) the values of each variable for the country are scaled on a range of 1
to 7.
(ii) the values of all variables for the country under a particular pillar are
averaged to yield a score from 1 to 7 for that pillar for the country.
(iii) the scores of all ve Input pillars are averaged to give an overall
score (on a scale of 1 to 7) of the country for the Input dimension.
(iv) the scores of all three Output pillars are averaged to give an overall
score (on a scale of 1 to 7) of the country for the Output dimension.
(v) the overall Input and Output scores (steps 3 and 4 respectively
above) are averaged to yield the overall Global Innovation Index score
(on a range of 1 to 7) for the country.
The ve inputs and three outputs (the eight pillars), by which countries'
innovative capacity was measured, are listed in detail below. This
variable has been rescaled.
16
Table 7 (continued)
Indicators
Unemployment
Rate
[%]
IP Protection
[#]
Source(s)
Historic percent of economically active population/ GMID
Euromonitor
International from
International Labor
Organization
Intellectual property protection and anti-counterfeiting measures in your World Economic
country are (1 = weak and not enforced, 7 = strong and enforced);
Forum, Executive
this variable has been rescaled to range from 0.1 to 0.7.
Opinion Survey 2007,
2008
corporate tax rate on the schedule of taxes applied to the taxable income of corporations. In concurrence with
literature, it is therefore expected that increases in corporate taxes will reduce venture capital investments.
Given the extensive research on legality, we include a Legal Rights Index measurement to assess the
degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thereby facilitate the lending process. Previous studies of legal sophistication allow us to understand the importance of investor protection (see e.g. La Porta et al., 1998; Cumming and Walz, 2010; Cumming et al., 2010a; Cumming
and Knill, 2012). In order to assess investor protection in more detail, the Disclosure Index variable is also evaluated. The overall implication of the variable is in line with investor protection as it draws on the liberality of
disclosing transaction related information. Further, research brought forth by Cumming et al. (2015), nds a
negative relationship between venture capital backing and disclosure of material weaknesses in internal control. The variable used in this paper measures which corporate body is able to approve a transaction decision
(CEO, board of directors, shareholders, and combinations thereof), whether disclosure to the public, the regulator, or the shareholder is required, whether disclosure in the annual report is required, whether disclosure to
the board of directors is required, and whether it is required that an external body reviews the transaction before closing. Lastly, the Shareholder Suits Index evaluates the powers of shareholders to challenge a transaction.
These indices are based on the research performed by La Porta et al. (1998, 2000, 2006) and Djankov et al.
(2006, 2008b) and the expected results are predicted to be in line with the aforementioned research papers
in that superior indices will demonstrate increases in venture capital investments. La Porta et al. (1998,
2000, 2006) focus on the law practiced in a panel of countries, assessing common law, French civil law, German civil law, as well as Scandinavian civil law.
Another element which is measured in this paper is the labor market, specically the unemployment rate,
which has also been found to be statistically signicant at least when it comes to the European venture capital
market (Flix et al., 2007). Our paper also assesses the signicance and role of the unemployment rate using
the variable Unemployment Rate on venture capital investments.
Intellectual property protection is also a variable that is assessed in this paper. IP Protection measures the
strength of protection of intellectual property as well as anti-counterfeiting. As mentioned in our literature review, the Innovation Index which measures the qualities of items such as a country's infrastructure, technological sophistication, business markets, as well as other components (please refer to Table 7 for more
information) is also assessed.
This paper furthermore assesses the role of a Bribery and Corruption Index. This variable describes the overall
extent of corruption (frequency and/or the size of bribes) in the public and political sectors. Additionally, review
of further literature in the eld of macroeconomic indicators as determinants has led to the inclusion of Exports
as a determinant of venture capital investments. This variable is also measured in terms of GDP.
3.2. Summary statistics
Table 4 provides the summary statistics for the 10 independent variables as well as the dependent variable.
All of the variables in the sample have 1652 observations.
Table 5 provides the correlation matrix. Here, we can see that many variables show high correlations. The
highest correlation within the data is found between IP Protection and the Bribery and Corruption Index. Other
noteworthy correlations exist between the legal rights index and the shareholder suits index as well as a high correlation between M&A and IP protection as well as bribery and corruption. This is of note as increases in IP protection and improvements in bribery and corruption thus also correlate with increases in M&A volume to GDP.
17
Table 8
Effect of M&A in attracting Venture Capital Investments [% of GDP] [random effects].

M&A Investment Volume [% of GDP] interaction
Corporate Tax [#]
Corporate Tax [#] interaction
Model A
[S.E.]
Model B
[S.E.]
Model C
[S.E.]
Model D
[S.E.]
Model E
[S.E.]
Model F
[S.E.]
0.393***
[0.072]
-0.329***
[0.119]
0.003
[0.007]
-0.018***
[0.005]
0.404***
[0.071]
-0.383***
[0.118]
0.403***
[0.071]
-0.374***
[0.118]
0.400***
[0.071]
-0.355***
[0.119]
0.407***
[0.071]
-0.382***
[0.120]
0.400***
[0.071]
-0.379***
[0.120]
0.024***
[0.005]
0.005
[0.003]
0.021***
[0.005]
0.010**
[0.004]
0.002
[0.001]
-0.002*
[0.001]
0.122***
[0.033]
-0.034*
[0.020]
0.109***
[0.034]
-0.031
[0.020]
0.053**
[0.024]
-0.001
[0.023]
Yes
1652
16.29
16.21
0.5778

Innovativeness Index [#] interaction
Unemployment Rate [%] interaction
0.098***
[0.025]
-0.038**
[0.018]
Legal Rights Index [#] interaction

Shareholder Suits Index [#] interaction
Constant
Year Fixed Effects
N
R2 overall in %
H-test
[P-value]
0.103***
[0.022]
Yes
1652
13.76
15.05
0.5921
-0.004
[0.019]
Yes
1652
16.28
16.88
0.4625
0.002
[0.021]
Yes
1652
15.25
28.84
0.0686
0.037**
[0.016]
Yes
1652
15.49
22.63
0.1616
0.021
[0.021]
Yes
1652
14.74
20.01
0.2736
Note: P-values as of *p b 0.10, **p b 0.05, ***p b 0.01. The H-test (Hausman test) is not rejected for any of the regressions.
Tables 6 and 7 provide the origin of each variable as well as the detailed description of how the indices are
evaluated.
4. Statistical methodology and empirical analysis
The aim of the paper lies in identifying determinants for venture capital investments into emerging markets, thereby expanding on the ndings of Jeng and Wells (2000). The analysis which follows uses random
effects regressions based on the model below.
yit 0 1 xit1 k xitk ai uit
This model is further altered to include an interaction term of each independent variable as well as year
dummy variables to account for year xed effects. The interaction term accounts for the independent variable
in undeveloped countries.
yit 0 1 xit1 2 DummyEM xit1 ::: k DummyYear ai uit
Using random effects allows us to capture the varying effects between the countries. It is assumed that the
unobserved effect, ai, is uncorrelated with the explanatory variables. Flix et al. (2007) state in their paper
that random effects models proved to be the most efcient specication this paper nds the same when
18
Table 9
Effect of investor protection variables in attracting venture capital investments [% of GDP] [random effects].

Model G
[S.E.]
Model H
[S.E.]
0.058**
[0.024]
0.127***
[0.034]
0.048**
[0.019]
0.058**
[0.024]
0.106***
[0.026]
0.051***
[0.017]
0.017
[0.020]
Yes
1652
13.50
16.03
0.4508

Constant
0.004
[0.024]
Yes
1652
12.58
12.27
0.7252
Year Fixed Effects

N
R2 overall in %
H-test
[P-value]
testing the robustness of our models. Furthermore, several of the variables analyzed in this paper are country dependent, an effect that could not be measured as efciently using xed effects. We therefore assume that differences exist between countries which have an effect on our dependent variable. Moreover, using random effects
allows us to apply dummy variables to account for each year to remove the year xed effects which would be
absorbed by the intercept of a xed effects model. To test whether these assumptions are applicable, we also
apply the Hausman test (1978) in our robustness check.
Table 10
Effect of corruption in attracting venture capital investments [% of GDP] [random effects].

Bribing & Corruption Index [#] interaction
Corporate Tax [#]
Corporate Tax [#] interaction
Model I
[S.E.]
Model J
[S.E.]
Model K
[S.E.]
0.013***
[0.005]
0.011**
[0.004]
0.008
[0.008]
0.027**
[0.010]
0.016***
[0.005]
0.008
[0.005]
0.020***
[0.003]
0.006*
[0.003]
0.112**
[0.048]
0.058
[0.045]

Constant
Year Fixed Effects
N
R2 overall in %
H-test
[P-value]
0.033
[0.029]
Yes
1652
12.52
12.23
0.7859
0.043*
[0.024]
Yes
1652
14.74
2.81
1.000
0.001
[0.001]
0.002*
[0.001]
0.011
[0.021]
Yes
1652
13.32
5.75
0.9947
19
Table 11
Effect of IP protection in attracting venture capital investments [% of GDP] [random effects].
IP Protection [#]
Model L
[S.E.]
Model M
[S.E.]
0.157***
[0.061]
0.091***
[0.027]
0.035*
[0.019]
0.171***
[0.061]
0.112***
[0.035]
0.028
[0.021]
0.029
[0.029]
Yes
1652
14.25
12.39
0.7165

0.008
[0.026]
Yes
1652
14.59
13.43
0.6409
Constant
Year Fixed Effects
N
R2 overall in %
H-test
[P-value]
Note: P-values as of * p b 0.10, ** p b 0.05, *** p b 0.01. The H-test (Hausman test) is not rejected for any of the regressions.
4.1. M&A investment volume

The results indicate that M&A investment volumes have a high signicance at determining venture capital
investments into a country. Models A through F in Table 8 indicate that M&A investment volumes are positively signicant at the 1% level for the regular term. This is in line with the ndings of Flix et al. (2007) who nd
signicance for trade sales in the European venture capital market. These ndings are maintained in Table 12
Table 12
Effect of exports in attracting venture capital investments using the D.V. as [% of GDP].
Exports [% of GDP]
Exports [% of GDP] interaction
Innovativeness Index [#] interaction
Model N
[S.E.]
Model O
[S.E.]
Model P
[S.E.]
0.106***
[0.023]
0.044
[0.035]
0.021***
[0.005]
0.010*
[0.005]
0.090***
[0.023]
0.021
[0.035]
0.019***
[0.005]
0.009*
[0.005]
0.381***
[0.071]
0.359***
[0.119]
0.023
[0.019]
Yes
1652
21.10
20.56
0.2464
0.025
[0.019]
Yes
1652
22.12
18.93
0.4613
0.089***
[0.023]
0.018
[0.035]
0.016***
[0.005]
0.014**
[0.006]
0.382***
[0.071]
0.353***
[0.119]
0.002
[0.001]
0.002*
[0.001]
0.021
[0.021]
Yes
1652
21.21
31.28
0.0691

M&A Investment Volume [% of GDP] interaction
Constant
Year Fixed Effects
N
R2 overall in %
H-test
[P-value]
Note: P-values as of * p b 0.10, ** p b 0.05, *** p b 0.01. The H-test (Hausman test) is not rejected for any of the regressions.
20
Table 13
Without interaction terms: Effect of M&A in attracting venture capital investments using the D.V. as [% of GDP] [random effects].

Corporate Tax [#]
Alt. Model A
[S.E.]
Alt. Model B
[S.E.]
Alt. Model C
[S.E.]
Alt. Model D
[S.E.]
Alt. Model E
[S.E.]
Alt. Model F
[S.E.]
0.298***
[0.058]
0.005
[0.007]
0.273***
[0.058]
0.272***
[0.058]
0.286***
[0.058]
0.283***
[0.058]
0.276***
[0.059]
0.026***
[0.005]
0.025***
[0.005]
0.001
[0.001]
0.104***
[0.032]
0.091***
[0.032]
0.058**
[0.024]
0.005
[0.023]
Yes
1652
12.37

0.076***
[0.023]

Constant
Year Fixed Effects
N
R2 Overall in %
0.088***
[0.022]
Yes
1652
7.92
0.000
[0.018]
Yes
1652
16.16
0.009
[0.020]
Yes
1652
16.22
0.035**
[0.017]
Yes
1652
10.46
0.018
[0.021]
Yes
1652
10.05
Note: P-values as of * p b 0.10, ** p b 0.05, *** p b 0.01.
model O and P, though the coefcients are slightly lower. Thus, the regular term coefcient lies between 0.381
and 0.407. A one standard deviation change in M&A Investments thereby translates to an increase of 0.0187
and 0.0199 in venture capital investments (percent of GDP). As these variables are both measured in terms
of GDP, it would indicate a percent increase in venture capital in terms of GDP by the aforementioned
amounts. Furthermore, the M&A interaction term is negatively signicant, also at the 1% level. This indicates
that M&A investment volumes inuence venture capital investments in a weakened sense in undeveloped
nations though the interaction term coefcient is negative, the overall inuence of the M&A variable
remains positive as expected. These ndings remain robust throughout all models. In terms of models E
and O, the economic values shown above, the remaining positive effect on venture capital in terms of GDP,
given a one standard deviation increase, for emerging markets is 0.0012 and 0.0011, respectively. Furthermore, we are able to determine that M&A retains signicance regardless of applying macroeconomic variables, investor protection variables, or the innovation index. This nding also conrms the predicted
thought that trade sales were to be signicant for both the regular and the interaction term due to the level
Table 14
Without interaction terms: Effect of investor protection in attracting venture capital investments using the D.V. as [% of GDP] [random
effects].

Alt. Model G
[S.E.]
Alt. Model H
[S.E.]
0.061**
[0.025]
0.101***
[0.034]
0.061**
[0.025]

Constant
Year Fixed Effects
N
R2 Overall in %
0.001
[0.024]
Yes
1652
8.39
0.070***
[0.024]
0.017
[0.021]
Yes
1652
8.14
21
Table 15
Without interaction terms: Effect of corruption in attracting venture capital investments using the D.V. as [% of GDP] [random effects].

Corporate Tax [#]
Alt. Model I
[S.E.]
Alt. Model J
[S.E.]
Alt. Model K
[S.E.]
0.022***
[0.003]
0.006
[0.007]
0.020***
[0.003]
0.021***
[0.003]
0.065**
[0.033]

Constant
Year Fixed Effects
N
R2 Overall in %
0.037
[0.023]
Yes
1652
15.03
0.008
[0.025]
Yes
1652
14.13
0.000
[0.001]
0.002
[0.020]
Yes
1652
14.09
of development that a stock market would require in contrast to the development necessary for a market for
trade sales. Thus, we can conclude that trade sales are a determinant regardless of the level of development of
the country, just that the effect of trade sales will vary and weaken or grow alongside the respective stage of
development that a country may be in, given the signicance of the interaction term. Furthermore, the M&A
investment volume retains its signicance at the 1% level when the interaction terms are removed (please see
Tables 13 and 17). Furthermore, in Table 12 models O and P we nd that the results of M&A investments
remain as well, signicant at the 1% level with a reduced effect for emerging markets.
4.2. Innovation index
The innovation index variable shows positive signicance at the 1% level for the regular term for both
models B and C of Table 8 as well as models N, O, and P of Table 12. This nding is in line with our expectations
as innovative venture rms are more likely to be venture capital funded (Engel and Keilbach, 2007) and countries which have higher levels of innovation ratings are thus attracting more venture capital investments.
Therefore, it was to be expected that higher innovation would increase venture capital investments. In the
case of innovation, a one standard deviation increase in the independent variable results in a 0.0216 and
0.0324 increase (respective of the lowest and highest coefcient found for the regular term) in venture capital
(in terms of GDP). This is quite a strong impact as the average of venture capital investments across the sample is 0.0409 and is further proof that innovation is a strong determinant for venture capital. In terms of our
Table 16
Without interaction terms: Effect of IP protection in attracting venture capital investments using the D.V. as [% of GDP] [random effects].
IP Protection [#]
Alt. Model L
[S.E.]
Alt. Model M
[S.E.]
0.199***
[0.056]
0.064***
[0.023]
0.204***
[0.056]

Constant
Year Fixed Effects
N
R2 Overall in %
-0.022
[0.025]
Yes
1652
13.36
0.094***
[0.033]
-0.042
[0.028]
Yes
1652
13.67
Note: P-values as of *p b 0.10, **p b 0.05, ***p b 0.01.
22
Table 17
Effect of exports in attracting venture capital investments using the D.V. as [% of GDP].
Exports [% of GDP]
Innovation Index [#]
Model P
[S.E.]
Model Q
[S.E.]
Model R
[S.E.]
0.086***
[0.019]
0.002***
[0.000]
0.081***
[0.019]
0.002***
[0.000]
0.260***
[0.058]
0.016
[0.018]
Yes
1652
21.09
0.019
[0.018]
Yes
1652
22.08
0.080***
[0.019]
0.002***
[0.000]
0.260***
[0.058]
0.000
[0.001]
0.012
[0.020]
Yes
1652
21.99

Constant
Year Fixed Effects
N
R2 Overall in %
Note: P-values as of *p b 0.10, **p b 0.05, ***p b 0.01.
interaction term, we nd statistical signicance only in model C and P at the 5% level and models N and O at
the 10% level. The positive coefcient of the interaction term in both models is again expected. It is interesting
to note the additional positive effect of innovation on venture capital specic to emerging markets. This is also
in line with expectations as the increase in venture capital investments into these markets rest on the capitalization of growth. Innovation retains its signicance as well in Tables 13 and 17 where the interaction terms
are removed. The economic inuence of this can be seen in model C: a one standard deviation increase in the
independent variable results in a 0.0419 increase in the dependent variable.
4.3. Legal rights index, disclosure index, and shareholder suits index
For the investor protection variables, we nd positive coefcients throughout the regular terms, meaning
that increases in the indices result in more venture capital investments. Overall, these ndings were expected
and are in line with the ndings of previous research (see e.g. La Porta et al., 1997; Leleux and Surlemont,
2003; Cumming et al., 2010a) as well as the theoretical framework that surrounds these indices.
For the legal rights index variable, we nd positive statistical signicance at the 1% level in models D, H,
and L for the regular term. This nding shows that superior collateral and bankruptcy law protection of the
rights of borrowers and lenders lead to a facilitation of lending. These ndings are expected as improvements
in lender and borrower protection and ought to increase venture capital investments. The coefcients of the
regular term range from 0.091 to 0.106. A one standard deviation of the legal rights variable translates to a
change of 0.0227 and 0.0264, respectively in venture capital investments (in percent of GDP) of the low
and high coefcient values. Although this same conclusion can be drawn for emerging markets through the
interaction term, we nd that the effect is reduced. The interaction term is statistically signicant at the 5%
level in model D, at the 1% level for model H, and at the 10% level for model L. For Model H, the model with
the highest regular term coefcient, we nd an increase in 0.0137 for the dependent variable, should the
independent variable increase by one standard deviation.
Overall, this supports the ndings of Leleux and Surlemont (2003) and Cumming et al. (2010a). Although
Leleux and Surlemont (2003) found that countries' laws have an effect on the size of the venture capital market, we can concur that the legal rights of a country in terms of collateral and bankruptcy protection inuence
the amount of venture capital investments. Cumming et al. (2010a) nd that laws can be made accountable
for the international differences in venture capital investing and nd that nations with superior legal systems
cultivate better venture capital markets. Our ndings support that the legal rights of a country inuence the
amount of venture capital investments through facilitation of lending.
For the disclosure index variable, we nd statistical signicance throughout. The coefcient is positive
with a signicance at the 5% level. The economical impact of these coefcients lies between a change of
0.0129 and 0.0141 in the dependent variable, should the independent variable increase by a factor of one
23
standard deviation. This shows that the transparency by which the corporate body is able to approve a transaction decision as well as the extent of making transaction related information available is having a positive
effect towards venture capital investments. Provided the operational habits of venture capitalists as active investors (Gompers and Lerner, 1998), such ndings were expected to increase venture capital investments. It
can further be explained by the ability of improved monitoring on the part of the venture capitalist. This, being
in line with the role of a venture capitalist as an active investor, allows active monitoring of their investments.
The shareholder suits index retains its coefcients which are positive throughout the regular terms, with a
negative and reducing effect in the interaction term for the emerging markets. Although the regular term is
always signicant at the 1% level (except for model J with a signicance at the 5% level), the interaction
term is negatively signicant at the 5% level for model G whilst being signicant at the 10% level in model E
and losing its signicance in models F, J, and M. It indicates that the shareholder's ability to challenge a transaction increases the investments of venture capital and has an overall positive effect in emerging markets as
well. This nding is in line with our expectations as it yields superior investor protection and reduces the
possibility of wrongdoing in the disinterest of a shareholder. The economical impact is thus that an increase
of one standard deviation in the shareholder suits index will increase the dependent variable by 0.0236 and
0.0275, respective of the lowest and highest coefcient found.
4.4. Bribery and corruption index
Table 10 shows positive statistical signicance of bribery and corruption at the 1% level for the regular
term. This is in line with expectations in that improvements, and thus decreases in bribery and corruption
practices, increase venture capital investments. Our interaction term, showing positive coefcients throughout the models, is signicant in models I and K at the 5% and 10% levels, respectively. Here, we can conclude
that the bribery and corruption interaction term coefcient shows a strengthened effect on venture capital investments in emerging markets. This is an interesting observation as it states that countries with less corruption appear to increase investments of venture capital and that decreases in bribery and corruption
specically in emerging markets have a stronger effect. Although this does not support the idea mentioned
earlier in regards to a potential positive effect of the presence of market-driven corruption, it can be explained
by the cross-border nature of venture capital. In other words, venture capitalists from developed countries
investing in emerging markets rate an improvement in bribery and corruption positively which was expected.
The coefcients of the regular term lie between 0.013 and 0.020, this translates to an increase of 0.0288 and
0.0442 in the dependent variable, should the bribery and corruption variable increase by one standard
deviation. For emerging markets, this nding translates to an increase in 0.0531 in the dependent variable
for model I, should the independent variable increase by one standard deviation. This is by far the highest
economic impact in terms of measuring one standard deviation effects.
4.5. Corporate tax
In terms of corporate tax, we nd no statistical signicance for the regular term. Although this is not in line
with previous papers, we do nd negatively signicant results for the interaction term at the 1% level.
Therefore, increases in corporate tax rates have a negative impact on venture capital in emerging markets.
This nding, to the extent of emerging markets, conrms Gompers and Lerner (1998) who state that a
reduction in prot taxes has a positive effect in the demand for venture capital and also partly coincides
with the ndings of Romain and van Pottelsberghe de la Potterie (2004) who also found negative statistical
signicance for corporate tax rates on venture capital intensity. A possible explanation of the insignicant
regular term could be that venture capitalists are aware of corporate tax rates in developed markets and
are more inclined to apply other determinants in these countries.
4.6. IP protection
In terms of intellectual property protection, we nd strong positive statistical signicance at the 1% level.
This indicates that IP protection promotes venture capital investments throughout the sample. This nding is
in line with expectations and fosters the ndings of Engel and Keilbach (2007) who state that venture
capitalists aim to capitalize on innovativeness of their portfolio rms which ought to be protected through
24
IP protection. Economically, this result expresses itself in a 0.0188/0.0204 increase in the dependent variable,
respective of the lowest and highest coefcient found, should the IP protection variable increase by one
standard deviation.
4.7. Unemployment rate

Throughout the regressions, the unemployment rate variable is statistically insignicant for the regular
term. The interaction term, however, is negatively signicant in all regressions at the 10% level. This is in
line, to the extent of emerging markets, with the ndings of others: Flix et al. (2007) also found the unemployment rate to have a negative impact on venture capital, they concluded that it is either due to the fact that
the potential workforce available to found a venture startup, based on Hellmann (1998), does not outweigh
the negative impact on the supply of venture capital. Alternatively, Flix et al. (2007) state that the workforce
may be correlated with labor market rigidities and that it may therefore capture the effect. Further, Cherif and
Gazdar (2011) also nd negative signicance for the unemployment rate for early stage investments. In this
case, as indicated, we can only support this nding for emerging markets. Therefore, we can conclude that an
increase in the unemployment rate has a negative impact on venture capital investments in undeveloped
nations. It is likely, though, that the unemployment rate has an economic impact which may indicate a
ourishing or dangling economy which in turn may attract the attention of venture capital investments
based on the country's overall economic stance.
4.8. Exports
In terms of the variable exports in percent of GDP, statistical signicance is only found for the regular term.
The signicance holds at the 1% level for all three models that are tested. The economical impact can be described as an increase of 0.0279/0.0332 in the dependent variable, should the independent variable increase
by one standard deviation for the lowest and highest coefcient value, respectively. This is in line with our
expectations due to the previously proven, positive link between entrepreneurship and exports in percent
of GDP. The insignicant interaction term could be explained by the idea that emerging economies do not
prioritize maximizing their exports. This could be drawn from the nding that the interaction term fails to
be signicant even at the 20% level in any of the regressions while the regular term maintains a P-value of
0.000 throughout all the models shown.
4.9. Robustness tests

To test the robustness of our regressions, the regressions are run as well in the form of alternative models
where the interaction terms has been removed. All variables, except for corporate tax and unemployment,
show theoretically expected signicances and coefcients: all indices, IP protection, and M&A are positively
signicant. Corporate tax and unemployment, the only two variables which are statistically insignicance,
show a negative coefcient which was expected. Please see Tables 13 through 17 for specics.
In addition, we also apply the Hausman test (1978) for all of our regressions. The P-value results are
reported in the regression Tables 8 through 12 for each respective model. Given that we do not reject the
null hypothesis for any of the Hausman tests at the 5% level, we retain the random effects model as the
more efcient specication.
Given the possibility of endogeneity of some of our variables, augmented regressions testing was
performed as well testing for the relevance and exogeneity of the instrumental variables. The relevance
test was adopted from Stock and Yogo (2004), the rst-stage F-statistic which measures the strength of
the instrumental variable in regards to its ability to satisfy the relevance condition. Further, based on
Bascle (2008), the Sargan statistic was tested to ensure the exogeneity of the instrumental variables, ensuring that the instrumental variables are not correlated with the error term of the structural equation. For the
variables tested, no sign of endogeneity was found and all statistical measures were upheld to ensure
exogeneity.
25
5. Conclusion
Using panel data from 118 countries, this paper has shown that determinants of venture capital investments in emerging markets can have alternative magnitudes and directions of impact for several of the
parameters. The primary nding of this paper, and its addition to existing literature, is that venture capital
determinants can vary according to the developmental stage of a country. This substantially adds to Jeng
and Wells (2000), emphasizing that drivers of venture capital activity are not always the same in developed
and developing countries and, as a matter of fact, frequently have opposing directions of coefcients with a
reducing effect. In some cases, however, we can observe that determinants either play a stronger role in
emerging markets or only a role in emerging markets. In other words, this paper shows that identifying determinants of venture capital investments in emerging markets is still a eld which yields much discovery:
commonly researched variables yielded mostly a reduced effect. Additional research would be required to
test whether additional determinants specic to the emerging markets exist.
Overall, it is found that determinants, rstly, have a weakening effect, secondly, a strengthening effect, and,
thirdly, an effect solely for emerging markets. Firstly, this paper nds that the effect of M&A investment volume,
the shareholder suits index, and the legal rights index are all positive yet the positive effects are reduced in
emerging markets. Secondly, bribery and corruption and innovation are positive for both the regular term as
well as the interaction term. IP protection and the disclosure index are also positively signicant. Thirdly,
in terms of the unemployment rate and the corporate tax variables, we observe statistical signicance only for
the interaction term. The most notable ndings are thus that bribery and corruption as well as innovation
play particular roles in developing countries. Lastly, only one variable was tested that retains signicance only
in developed economies which is exports. This, however, is in line with expectations: the average value for exports in terms of GDP for developed countries is 0.564 whereas for emerging economies it is 0.362.
Given the extent of contemporary literature, in combination with the ndings of this paper, it can be said that
many questions still remain unanswered. Two principal paths are in need of further investigation: rstly, it has been
demonstrated that determinants for investments vary across the stage of the investment, meaning that determinants for venture capital differ from those of private equity or even within the category of venture capital, differentiations can be made in terms of the investment stage. This had already been discussed in previous literature and
can again be conrmed to the extent that the variables have shown to be signicant whereas other papers found
them not to be and vice versa. This paper has also given credence to the fact that, to some extent, determinants
that foster venture capital investments in general, have a weakened effect on venture capital investments in undeveloped countries. Further analysis would thus be required before any recommendations could be generalized
across all stages of the alternative investment chain. Even in regards to the discoveries made in this paper about
venture capital determinants in undeveloped countries, much more ought to be addressed such as the impact of
unemployment and links to labor market rigidities. Thus, and secondly, even within a specic investment stage, determinants can vary across countries. Cultural factors aside, which ought to remain somewhat consistent over time,
economic development gives rise to differentiating circumstances. As this paper has demonstrated, certain determinants, though weakened in comparison to developed economies, still show strong inuence in emerging markets.
In terms of research outlook, three areas would be of interest to address: rst, the inuence of governmental venture capital, second, the effect within and between continents or regions, and, third, the inuence of the
origin of the investment. Unfortunately, such data is difcult to obtain at this stage. However, it would be interesting to see whether governmental venture capital has alternate inuences in emerging versus developed
markets as the literature in this eld is still elementary in regards to comparatives of governmental venture
capital itself. Examples of such research (Armour and Cumming, 2006 and Cumming and MacIntosh, 2006)
show that government programs can hinder the development of venture capital as well as produce higher
agency costs and lower protability in contrast to private funds. Accounting for government venture capital
investment would certainly contribute to better understand the venture capital determinants as well as the
venture capital activity in each market. Second, the effect within and between continents and regions would
require a thorough analysis of economic, cultural, as well as religious aspects, elements which have been addressed in recent literature, however, not on a global scale. Third, the inuence of the origin of the investment
would allow the differentiation between cross-border investments which would also shed additional light on
the inuence that developed markets have on emerging markets. In this context, looking at Lauterbach et al.
(2014), it would also be of interest to explore the impact of increased inows of funds into private equity
and venture capital funds and the effect of this specically on emerging market investment behavior.
26
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Country
Unemployment
rate
Corporate
TAX
Disclosure
index
Shareholder
suits index
Legal rights
index
IP Protection
Corruption
index
Innovation
index
M&A
(% of GDP)
Exports
(% of GDP)
Venture capital
(% of GDP)
Albania
Algeria
Angola
Argentina
Armenia
Australia
Austria
Bahrain
Bangladesh
Belarus
Belgium
Benin
Bosnia-Herzegovina
Botswana
Brazil
Bulgaria
Burkina Faso
Burundi
Cambodia
Cameroon
Canada
Chad
Chile
China
Colombia
Cte d'Ivoire
Croatia
Cyprus
Czech Republic
Denmark
Dominican Republic
Ecuador
Egypt
El Salvador
Estonia
14.23
16.30
18.92
10.97
26.73
5.42
4.39
4.22
4.22
1.60
7.73
0.80
28.86
17.16
8.76
11.81
46.59
46.09
0.86
4.74
7.11
10.59
8.51
4.00
12.41
17.68
13.10
6.10
7.12
5.42
15.57
7.21
10.37
6.66
10.33
0.16
2.50
3.50
3.50
2.00
3.00
2.50
0.00
2.91
2.31
3.40
3.00
1.00
2.44
3.40
1.25
3.00
3.50
2.00
3.85
3.33
3.55
1.75
2.96
3.35
2.62
2.00
1.02
2.21
2.65
2.84
2.46
2.07
3.00
2.21
0.30
0.50
0.40
0.70
0.50
0.80
0.50
0.80
0.60
0.34
0.80
0.60
0.30
0.76
0.50
1.00
0.60
0.49
0.50
0.60
0.80
0.60
0.73
1.00
0.90
0.60
0.17
0.49
0.20
0.70
0.50
0.10
0.44
0.30
0.80
0.47
0.40
0.60
0.60
0.80
0.71
0.51
0.20
0.60
0.80
0.70
0.31
0.50
0.30
0.40
0.61
0.41
0.48
0.20
0.60
0.81
0.30
0.51
0.40
0.80
0.30
0.51
0.71
0.81
0.71
0.70
0.60
0.30
0.53
0.60
0.89
0.29
0.29
0.39
0.55
0.92
0.69
0.29
0.60
0.22
0.49
0.36
0.51
0.59
0.20
0.90
0.36
0.25
0.36
0.36
0.71
0.36
0.43
0.40
0.49
0.36
0.59
0.89
0.65
0.85
0.29
0.19
0.29
0.49
0.63
0.24
0.27
0.25
0.28
0.27
0.57
0.57
0.46
0.22
0.26
0.53
0.31
0.23
0.36
0.33
0.27
0.37
0.20
0.27
0.32
0.56
0.21
0.38
0.36
0.34
0.22
0.35
0.44
0.38
0.60
0.31
0.26
0.35
0.32
0.46
2.84
2.91
1.96
3.00
2.98
8.63
7.91
5.51
1.81
3.14
7.23
3.08
3.31
5.94
3.82
3.89
3.38
2.15
2.15
2.23
8.65
1.77
7.23
3.54
3.72
2.27
3.98
6.06
4.48
9.38
3.03
2.45
3.19
3.76
6.23
1.84
2.00
1.23
2.71
2.28
4.79
4.74
4.19
1.77
3.30
4.87
2.39
2.19
3.03
3.26
2.55
2.03
1.58
1.90
1.90
5.35
2.68
3.63
3.93
2.79
2.82
3.08
3.47
3.93
5.29
2.46
2.07
2.39
2.64
4.03
0.01
0.00
0.00
0.01
0.02
0.09
0.02
0.02
0.00
0.01
0.05
0.00
0.01
0.00
0.03
0.05
0.01
0.00
0.01
0.00
0.09
0.01
0.05
0.01
0.02
0.00
0.02
0.05
0.03
0.05
0.01
0.01
0.03
0.02
0.02
0.27
0.46
0.70
0.18
0.24
0.19
0.50
0.71
0.16
0.64
0.77
0.19
0.29
0.48
0.13
0.49
0.14
0.08
0.59
0.21
0.35
0.40
0.36
0.27
0.17
0.49
0.39
0.61
0.64
0.50
0.30
0.28
0.24
0.26
0.69
0.00
0.00
0.00
0.00
0.00
0.08
0.01
0.37
0.00
0.00
0.06
0.00
0.00
0.01
0.03
0.00
0.00
0.00
0.00
0.02
0.19
0.00
0.00
0.06
0.00
0.00
0.00
0.02
0.02
0.09
0.00
0.00
0.00
0.00
0.03
Appendix A. Appendix
Ethiopia
Finland
France
Georgia
Germany
Ghana
Greece
Guatemala
Hong Kong
Hungary
Iceland
India
Indonesia
Ireland
Israel
Italy
Jamaica
Japan
Jordan
Kazakhstan
Kenya
Korea, South
Kuwait
Kyrgyzstan
Latvia
Lesotho
Lithuania
Luxembourg
Macedonia
Madagascar
Malawi
Malaysia
Mali
Mauritania
Mauritius
Mexico
Moldova
Mongolia
Montenegro
Morocco
Mozambique
Namibia
Netherlands
20.95
8.26
8.94
13.84
8.16
7.38
12.86
2.20
4.97
8.04
4.16
7.80
8.26
7.86
9.92
8.48
12.36
4.61
14.70
7.56
46.09
3.54
1.35
9.35
12.47
46.09
11.95
4.24
33.27
3.76
32.50
3.31
8.80
20.60
8.31
4.04
6.70
6.35
23.29
10.31
15.08
24.03
4.21
3.00
2.58
3.33
1.50
3.45
2.50
2.63
3.10
1.71
1.69
1.80
3.36
2.84
1.25
2.84
3.47
3.27
4.03
2.19
2.64
3.00
2.62
4.07
2.64
1.50
2.97
1.54
2.93
1.26
2.09
3.00
2.67
2.97
2.97
2.05
2.91
0.09
2.50
0.90
3.00
3.20
3.39
2.74
0.30
0.60
0.90
0.62
0.50
0.70
0.17
0.30
0.90
0.20
0.49
0.60
0.94
1.00
0.70
0.70
0.40
0.70
0.40
0.55
0.30
0.70
0.40
0.70
0.50
0.21
0.54
0.60
0.51
0.60
0.40
1.00
0.60
0.60
0.60
0.71
0.70
0.41
0.50
0.53
0.50
0.50
0.31
0.31
0.71
0.50
0.46
0.50
0.71
0.50
0.50
0.99
0.69
0.71
0.70
0.30
0.90
0.90
0.70
0.41
0.80
0.11
0.70
0.99
0.71
0.21
0.80
0.80
0.81
0.61
0.30
0.31
0.50
0.51
0.70
0.30
0.40
0.89
0.50
0.71
0.70
0.60
0.21
0.81
0.61
0.60
0.39
0.79
0.40
0.61
0.75
0.67
0.39
0.57
0.98
0.69
0.69
0.60
0.40
0.89
0.88
0.29
0.79
0.40
0.19
0.21
0.98
0.59
0.29
0.75
0.99
0.59
0.51
0.39
0.60
0.19
0.69
0.98
0.36
0.29
0.60
0.70
0.80
0.59
1.01
0.29
0.29
0.69
0.58
0.29
0.62
0.58
0.27
0.61
0.33
0.41
0.27
0.54
0.42
0.57
0.40
0.35
0.55
0.49
0.41
0.35
0.55
0.44
0.32
0.30
0.45
0.37
0.24
0.35
0.28
0.35
0.57
0.28
0.29
0.33
0.50
0.31
0.30
0.40
0.34
0.26
0.24
0.28
0.35
0.26
0.41
0.60
2.83
9.42
6.98
3.25
7.82
3.78
4.11
2.82
8.08
5.07
8.98
3.13
2.44
7.47
6.45
4.77
3.57
7.37
4.89
2.54
2.17
4.99
4.70
2.13
4.30
3.56
4.89
8.46
3.19
2.71
3.07
4.89
2.94
2.89
4.88
3.45
2.93
3.02
3.18
3.47
2.76
4.69
8.76
1.58
5.19
5.44
2.19
6.23
2.84
3.11
2.51
5.33
3.61
4.90
4.05
2.96
4.85
4.80
4.22
2.86
5.68
3.04
2.70
2.37
0.39
3.73
1.74
3.25
1.62
3.30
4.91
2.32
2.19
2.77
4.32
2.51
2.49
2.84
3.21
2.39
2.27
3.36
2.38
1.67
2.35
5.34
0.00
0.04
0.04
0.01
0.03
0.02
0.03
0.01
0.12
0.02
0.08
0.02
0.02
0.05
0.03
0.04
0.02
0.02
0.03
0.03
0.01
0.03
0.01
0.02
0.01
0.01
0.02
0.22
0.01
0.00
0.00
0.07
0.01
0.03
0.04
0.02
0.01
0.02
0.01
0.02
0.05
0.01
0.08
0.14
0.42
0.28
0.32
0.40
0.29
0.23
0.25
1.91
0.74
0.43
0.19
0.31
0.93
0.36
0.27
0.30
0.14
0.48
0.49
0.21
0.43
0.62
0.45
0.51
0.51
0.45
1.71
0.38
0.27
0.22
1.02
0.25
0.46
0.56
0.28
0.46
0.54
0.40
0.32
0.30
0.46
0.74
0.00
0.08
0.05
0.00
0.03
0.00
0.03
0.00
0.43
0.01
0.02
0.08
0.01
0.07
0.33
0.01
0.00
0.02
0.00
0.00
0.01
0.06
0.01
0.00
0.00
0.00
0.01
0.18
0.00
0.00
0.00
0.03
0.00
0.00
0.62
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.07
27
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
28
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
Country
Unemployment
rate
Corporate
TAX
Disclosure
index
Shareholder
suits index
Legal rights
index
IP Protection
Corruption
index
Innovation
index
M&A
(% of GDP)
Exports
(% of GDP)
Venture capital
(% of GDP)
New Zealand
Nicaragua
Nigeria
Norway
Oman
Pakistan
Paraguay
Peru
Philippines
Poland
Portugal
Romania
Russian Federation
Rwanda
Saudi Arabia
Senegal
Serbia
Singapore
Slovakia
Slovenia
South Africa
Spain
Sweden
Switzerland
Syria
Taiwan
Tanzania
Thailand
Tunisia
Turkey
Uganda
Ukraine
United Arab Emirates
United Kingdom
United States
Uruguay
Venezuela
Vietnam
Zambia
Zimbabwe
5.24
6.67
16.44
3.47
11.82
6.74
7.01
8.44
7.30
13.54
8.71
7.12
7.50
1.04
5.43
11.10
17.74
3.67
15.18
6.74
25.86
14.55
7.07
3.84
9.65
4.43
5.69
1.74
14.49
9.58
3.26
8.30
3.76
6.09
6.39
10.86
10.60
2.30
11.24
4.94
3.13
3.00
3.00
2.80
1.20
3.50
1.00
3.00
3.32
1.90
2.63
1.60
2.26
3.00
2.00
2.50
1.04
1.89
1.93
2.26
3.54
3.27
2.71
2.01
3.11
2.27
3.00
2.88
3.25
2.00
3.00
2.43
5.50
2.85
4.00
2.79
3.40
2.69
3.50
2.94
1.00
0.10
0.40
0.70
0.80
0.60
0.60
0.77
0.20
0.70
0.60
0.86
0.60
0.38
0.74
0.60
0.70
1.00
0.30
0.33
0.80
0.50
0.49
0.00
0.63
0.73
0.20
1.00
0.18
0.84
0.30
0.21
0.41
1.00
0.70
0.30
0.30
0.46
0.40
0.80
0.99
0.60
0.70
0.71
0.21
0.60
0.60
0.52
0.79
0.86
0.70
0.41
0.70
0.17
0.34
0.21
0.31
0.90
0.70
0.80
0.80
0.41
0.70
0.41
0.21
0.51
0.71
0.60
0.59
0.51
0.61
0.60
0.20
0.71
0.90
0.80
0.21
0.10
0.70
0.40
1.01
0.29
0.60
0.59
0.38
0.30
0.29
0.54
0.39
0.82
0.29
0.86
0.40
0.39
0.34
0.36
0.64
0.99
0.79
0.45
0.69
0.59
0.72
0.79
0.14
0.44
0.69
0.49
0.29
0.49
0.69
0.89
0.39
0.98
1.10
0.40
0.19
0.60
0.89
0.69
0.58
0.28
0.29
0.56
0.49
0.30
0.22
0.26
0.30
0.36
0.48
0.31
0.25
0.44
0.43
0.32
0.27
0.61
0.38
0.44
0.51
0.45
0.59
0.62
0.37
0.49
0.31
0.38
0.43
0.31
0.27
0.26
0.49
0.59
0.56
0.38
0.21
0.27
0.30
0.31
9.40
2.58
2.01
8.64
5.59
2.40
2.11
3.68
2.70
4.48
6.28
3.38
2.46
3.56
4.10
3.22
3.07
9.19
4.27
6.06
4.59
6.64
9.16
8.79
2.84
5.83
2.82
3.44
4.56
3.97
2.45
2.41
6.02
8.14
7.40
6.29
2.21
2.68
2.87
2.35
4.48
1.98
2.36
4.67
3.67
2.23
1.68
2.58
2.58
3.01
3.54
2.86
2.98
2.61
4.25
2.71
2.88
5.51
3.59
3.60
3.34
4.21
5.37
5.70
2.49
5.47
2.17
3.49
3.26
3.12
2.08
2.55
4.64
6.22
7.32
2.70
2.22
2.70
2.52
1.83
0.06
0.01
0.01
0.05
0.01
0.01
0.00
0.02
0.03
0.02
0.04
0.02
0.04
0.00
0.00
0.00
0.01
0.09
0.02
0.01
0.05
0.05
0.06
0.07
0.00
0.03
0.02
0.02
0.01
0.02
0.01
0.02
0.01
0.10
0.07
0.02
0.01
0.01
0.01
0.02
0.33
0.30
0.27
0.43
0.52
0.14
0.53
0.24
0.41
0.37
0.31
0.35
0.33
0.12
0.51
0.26
0.29
2.05
0.75
0.64
0.30
0.27
0.48
0.61
0.22
0.00
0.22
0.71
0.46
0.24
0.17
0.52
0.68
0.28
0.11
0.26
0.30
0.66
0.37
0.34
0.02
0.01
0.00
0.06
0.00
0.00
0.00
0.00
0.01
0.01
0.02
0.00
0.01
0.00
0.01
0.00
0.00
0.48
0.00
0.01
0.04
0.03
0.10
0.14
0.00
0.05
0.00
0.00
0.00
0.00
0.02
0.00
0.15
0.14
0.30
0.01
0.00
0.02
0.00
0.03
Appendix
(continued)A. (continued)
29
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EMEMAR-00478; No of Pages 29

Emerging Markets Review xxx (2016) xxxxxx

Contents lists available at ScienceDirect

Emerging Markets Review

Determinants of venture capital investments in

A.P. Groh, J. Wallmeroth / Emerging Markets Review xxx (2016) xxxxxx

Please refer to Fig. 1 for further details.

A.P. Groh, J. Wallmeroth / Emerging Markets Review xxx (2016) xxxxxx

A.P. Groh, J. Wallmeroth / Emerging Markets Review xxx (2016) xxxxxx

M&A Investment Volume [% of GDP]

T-test difference in means P-value

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Black and Gilson

Venture Capital Journal

Jeng and Wells

The European Venture

VC investments w/o Gov't

By using the US, Japan, and Germany as models, they

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EVCA Yearbooks, Spanish

New funds raised

EVCA, La Porta Database

(continued on next page)

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Mart and Balboa

they are negatively affecting early stage

Romain and van

OECD, MSTI, EVCA

Flix et al. (2007)

APCRI, EVCA Yearbooks

New fundraising for VC

Probability receiving rst

The paper nds that GDP growth is signicant and

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Cherif and Gazdar

Early stage investments

developed legal environments enable faster deal

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Probability receiving rst

(continued on next page)

SDC VentureXpert & AVCJ

Findings include a positive inuence on venture

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Venture Capital Investments

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M&A Investment Volume

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Thomson One Banker

Legal Rights Index

Transaction Value Excluding Liabilities Assumed: Transaction Value

World Bank, World

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(iv) General description of debts and obligations is permitted in

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Bribing & Corruption

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Historic percent of economically active population/ GMID

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M&A Investment Volume [% of GDP]

Innovativeness Index [#]

Legal Rights Index [#] interaction

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Disclosure Index [#]

Note: P-values as of * p b 0.10, p b 0.05, * p b 0.01.

Note: P-values as of * p b 0.10, p b 0.05, * p b 0.01.

Note: P-values as of * p b 0.10, p b 0.05, * p b 0.01.

Note: P-values as of p b 0.10, p b 0.05, p b 0.01.