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Attractiveness of Private Equity & Venture Capital Investments

Espahbodi, Kimiya LU and Dahlman, Samuel LU (2023) NEKH01 20222
Department of Economics
Abstract
This paper uses a cross-country study to understand how national culture affects institutional private equity and venture capital investments in Europe, using previous works of Groh, Liechtenstein and Lieser (2010) and Hofstede, Hofstede and Minkov (2011). We argue that national culture might affect capital allocation and that this parameter is often missing in the contemporary discourse on the drivers of investments. This paper aims to further explain what determinants make some countries more attractive than others by combining formal and informal institutions in a way that no previous study has done. Our hypotheses test the effects of cultural traits such as power distance, uncertainty avoidance, masculinity and individualism have on... (More)
This paper uses a cross-country study to understand how national culture affects institutional private equity and venture capital investments in Europe, using previous works of Groh, Liechtenstein and Lieser (2010) and Hofstede, Hofstede and Minkov (2011). We argue that national culture might affect capital allocation and that this parameter is often missing in the contemporary discourse on the drivers of investments. This paper aims to further explain what determinants make some countries more attractive than others by combining formal and informal institutions in a way that no previous study has done. Our hypotheses test the effects of cultural traits such as power distance, uncertainty avoidance, masculinity and individualism have on funding in Europe 2021. Additionally, we hypothesize that the effects of these differ depending on countries' development level, hence the countries are categorized and studied separately. To test the hypotheses, we use a linear regression analysis for 33 European countries by using 767 data points from 2015–2020. Our findings indicate that more developed countries attract more capital because of their strong formal institutions. The relation between countries' development level also resulted in more complex results than previously found. National culture has a much higher explanatory value in less developed countries while also individualism is found to increase their attractiveness for investments. Thus, informal institutions add to the explanation of why some European countries are more attractive to invest in. (Less)
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author
Espahbodi, Kimiya LU and Dahlman, Samuel LU
supervisor
organization
course
NEKH01 20222
year
type
M2 - Bachelor Degree
subject
keywords
Venture Capital, Private Equity, International asset allocation, Institutional Investors, Europe, Geographical bias, Attractiveness Index, Formal Institutions, Informal Institutions, National Culture
language
English
id
9111691
date added to LUP
2023-03-28 09:00:28
date last changed
2023-03-28 09:00:28
@misc{9111691,
  abstract     = {{This paper uses a cross-country study to understand how national culture affects institutional private equity and venture capital investments in Europe, using previous works of Groh, Liechtenstein and Lieser (2010) and Hofstede, Hofstede and Minkov (2011). We argue that national culture might affect capital allocation and that this parameter is often missing in the contemporary discourse on the drivers of investments. This paper aims to further explain what determinants make some countries more attractive than others by combining formal and informal institutions in a way that no previous study has done. Our hypotheses test the effects of cultural traits such as power distance, uncertainty avoidance, masculinity and individualism have on funding in Europe 2021. Additionally, we hypothesize that the effects of these differ depending on countries' development level, hence the countries are categorized and studied separately. To test the hypotheses, we use a linear regression analysis for 33 European countries by using 767 data points from 2015–2020. Our findings indicate that more developed countries attract more capital because of their strong formal institutions. The relation between countries' development level also resulted in more complex results than previously found. National culture has a much higher explanatory value in less developed countries while also individualism is found to increase their attractiveness for investments. Thus, informal institutions add to the explanation of why some European countries are more attractive to invest in.}},
  author       = {{Espahbodi, Kimiya and Dahlman, Samuel}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Attractiveness of Private Equity & Venture Capital Investments}},
  year         = {{2023}},
}