Developing venture capital when institutions change

Abstract

This paper investigates the impact of formal institutional change on the venture capital (VC) development process. Specifically, it contrasts VC development processes taking place in stable and volatile formal institutional environments. It shows that formal institutional change – both improvement and decline – facilitates the VC development process, and that more change is more beneficial to that process than less change. Macro institutional change plays a larger role in facilitating the VC development process than micro institutional change, and changes in two macro-level dimensions – rule of law and political stability – have the largest positive impact on that process. Employing longitudinal interview and archival data from four emerging economies with a range of institutional change and quality levels, Botswana, Indonesia, Pakistan, and South Africa, empirical support is provided for the propositions.