Stabilizing institutions for new venture investment decisions
Journal of Enterprising Communities: People and Places in the Global Economy
ISSN: 1750-6204
Article publication date: 12 October 2015
Abstract
Purpose
This paper aims to examine the relationship between aspects of a country’s institutional environment and entrepreneurial investors’ overall rate of return.
Design/methodology/approach
Specifically, monetary stability and property rights are tested against both entrepreneurs’ and angel investors’ expected financial returns and payback periods, respectively. Data from the Global Entrepreneurship Monitor survey including years 2004 through 2006 and encompassing 50 countries are aggregated and examined using random coefficient multilevel modeling.
Findings
We find that strong property rights encourage both angel investors and entrepreneurs to invest in new ventures with longer payback periods and encourage angel investors to invest in ventures with lower expected financial returns.
Practical implications
This suggests that one key to increasing entrepreneurial investment in a country is to guarantee strong property rights. Therefore, both entrepreneurs seeking funding and countries seeking entrepreneurs should incorporate property rights issues into their decision-making.
Originality/value
This finding moves the “attracting entrepreneurs” conversation beyond the typical tax-abatement, infrastructure building, business cluster recommendations prevalent in academic and professional literature and points to one of the more fundamental reasons entrepreneurial “cultures” develop some places, but not others.
Keywords
Citation
Crum, M. and Nelson, T.E. (2015), "Stabilizing institutions for new venture investment decisions", Journal of Enterprising Communities: People and Places in the Global Economy, Vol. 9 No. 4, pp. 344-360. https://doi.org/10.1108/JEC-05-2013-0014
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited