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AEC 2012 - The Impact of the Legal Environment on Venture Capital and Private Equity in Africa Empirical Evidence
Using a novel dataset, I empirically assess the impact of the legal environment on venture capital and private equity activity across 50 African countries between 2004 and 2010. Preliminary results indicate that a better legal environment increases market entry by investors and entrepreneurs. While seed, start-up or early stage venture capital increases with better rule of law, expansion stage venture capital decreases and private equity is practically zero. In addition, both venture capital and private equity increase where strength of property rights is weaker. These findings suggest that venture capital substitutes for debt financing from other sources e.g. banks, in weaker legal environments.