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Effects of inward investment on outward investment: The venture capital industry worldwide 1985–2007

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Abstract

We identify inward investment as an important impetus to outward investment, supplemental to the impetuses depicted in conventional internationalization frameworks. By incorporating both the spillover and competition effects of foreign entrants, we develop an integrated framework of the inward–outward investment relationship for different investment modes and different home-country and host-country pairs. Our analysis of venture capital (VC) investments worldwide from 1985 to 2007 shows a positive spillover effect on outward investment for inward co-investments and a negative competition effect on outward investment for inward standalone investments. We find the strongest effects when the host country is a laggard in the VC industry and the home country is a leader.

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Notes

  1. It is worth noting that the VentureXpert Database does not provide the specific amount invested by each VC firm in each round, but rather the total investment amount in each round. After identifying all of the foreign PCs that the host-country VCs invested in, we aggregated the amount of VC investment in each of these foreign PCs, and then summarized the total amount invested in all foreign PCs that the host-country VCs were involved in. Because of a large number of missing data, and thus a significant reduction in observations, we used this measure only for a robustness check. We replaced all the missing values with zeros in order to run the models.

  2. There are missing data for particular countries in certain years. We employed a regression imputation procedure (Little & Rubin, 1983) to impute the missing data for the institutional indicators. As this procedure generated negative values for the count of scientific articles and US patents, we estimated these two variables using data from the most recent available year for each host country.

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Acknowledgements

The authors are listed alphabetically; each contributed equally to this manuscript. This research was supported by a research grant from the National University of Singapore (R-314-000-059-112). We thank Andrew Delios and Fu Qiang for helpful comments on earlier versions of this paper. This manuscript benefited greatly from comments received from Arjen van Witteloostuijn and two anonymous reviewers.

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Correspondence to Qian Gu.

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Accepted by Arjen van Witteloostuijn, Area Editor, 14 July 2010. This paper has been with the authors for one revision.

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Gu, Q., Lu, J. Effects of inward investment on outward investment: The venture capital industry worldwide 1985–2007. J Int Bus Stud 42, 263–284 (2011). https://doi.org/10.1057/jibs.2010.51

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