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The interplay of institutional quality and financial development in venture capital fundraising

Author

Listed:
  • Muhammad Zubair Khan

    (University of Science and Technology Bannu)

  • Walter Ferrier

    (University of Kentucky)

  • Zafir Ullah Khan

    (University of Science and Technology Bannu)

  • Affan Hameed

    (University of Arts London)

Abstract

The paper explores the association between financial development and venture capital fundraising, and how that relationship varies with institutional quality. We analyze a dataset of thirty-one countries between 2005 and 2017 using a dynamic two-step system generalized method of moments (GMM) estimation technique. We find that financial development and its two components, namely financial markets, and financial institutions, exert a significant positive effect on venture capital fundraising. However, the relationship shifts with institutional quality, with positive and large effects in countries with robust legal frameworks but not in those with weak legal frameworks. The results are robust to the use of different data sources and proxies for institutional quality, as well as estimation techniques.

Suggested Citation

  • Muhammad Zubair Khan & Walter Ferrier & Zafir Ullah Khan & Affan Hameed, 2025. "The interplay of institutional quality and financial development in venture capital fundraising," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 52(2), pages 379-413, June.
    • Handle: RePEc:spr:epolin:v:52:y:2025:i:2:d:10.1007_s40812-024-00333-0
    DOI: 10.1007/s40812-024-00333-0
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