Stabilizing institutions for new venture investment decisions

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.

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