The impact of social capital on cross-national differences in venture capital activity

Venture capital (VC) is an important source of financial leverage, fostering new companies and boosting economic growth (J. Lerner & Tag, 2013). The differences across countries in terms of funds provided are substantial and several researchers have studied the factors that might impact this market’s dynamics. The literature has been focusing on the importance of economic and financial factors, defining several determinants of the VC market. The effect of social capital on such a topic instead, has yet to be addressed due to a scarcity of data. This dissertation aims to fill the gap, providing an in-depth analysis of social capital and its impact on VC. The central concept of social capital are networks, and the relationships among people (Putnam, 1993). Within this concept the literature defines group activities and memberships, that compose the collective network, and on the other hand the family connections, which make up the individual network (Putnam, 1993). While this latter can support individual well-being, at a community level networks improve market imperfections in the terms of trust and lower uncertainty (Salahuddin, Tisdell, Burton, & Alam, 2016). According to the classification of institutions by North (1990), this study defines social capital in its formal and informal variables. In the former, countries’ network infrastructures are investigated through the level of internet penetration and the mobile phone subscriptions; in the latter, the personal relationship (individual network) and the civic engagement (collective network) are studied. Despite the expectations, the results provide no significant outcomes for personal relationship and civic engagement, rather when combined with long-term oriented cultures. Internet and mobile phone return significant but negative values, underlining an unexpected negative impact on VC activity, which lead to interpret digitalization as likely to encourage alternative financing systems or to foster isolation rather than inclusion.