Start-ups - Risk or opportunity?
Exploring the effect of capitalization on start-ups performance and the moderating
role of internationalization and host-country institutional effect
Student name Sanne Suzan Duursma Faculty of Economics and Business
Student number 10684751 University of Amsterdam
Supervisor Dr. Ilir Haxhi Msc. in Business Administration Second reader Drs. Erik Dirksen International Management Track Date submission 29th
STATEMENT OF ORIGINALITY
This document is written by Student Sanne Suzan Duursma who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
ABSTRACT
Many scholars consider start-ups as an important source of economic development, whereas other scholars report that start-ups often experience financial constraints, which can be resolved by capital providers. However, little is known about the direct effect of capital providers on start-ups performance. Additionally, the influence of internationalization and the institutional development of host-country on MNEs are extensively studied but seem to underestimate the impact of internationalization on start-up performance. This thesis examines the direct effect of capital providers on the performance of start-ups. By adding two possible moderators: the level of internationalization and the level of institutional development, this study argues that capital providers can enhance the financial performance of start-ups. The direct effect and two indirect effects are tested individually for all start-ups (bot international and domestic start-ups) and for domestic start-ups. Results reveal interesting findings, namely that the effect of capital providers on start-up performance depends on the level of internationalization of the start-ups. Capital providers do significantly improve the financial situation of domestic performance. In addition, the level of institutional development moderates the effect of capital providers on domestic start-up performance. Regarding domestic start-ups, the formal institution moderates the influence of capital providers. This thesis contributes to existing literature in the way that the actual impact of capital providers on start-up performance is measured. Findings contribute to the on-going debate about whether domestic of international start-ups perform better and how capital providers can improve the financial performance.
ACKNOWLEDGEMENT
I would like to thank my supervisor Dr. Ilir Haxhi for providing me with support and feedback during the development of this thesis. Moreover, I would like to thank him for giving me so much freedom during writing my thesis. Furthermore I would like to thank Natália Kafková and Elke Nijhoff for their work, when we searched for a new dataset and all the coffee meetings. I would like to thank Drs. Erik Dirksen for reading and my thesis together with Dr. Ilir Haxhi. Finally, I would like to thank my family, friends and roommates for their endless positive support.
TABLE OF CONTENT
Abstract………..…...………..….3
Acknowledgement………4
List of tables and figures………..7
Abbreviations………...…….8
1. Introduction……….………...….9
2. Literature review………..………...…….………13
2.1 Definition and characteristics of start-………...….…...13
2.1.1 Start-ups and capital providers………..….…14
2.1.2 Level of internationalization ………..………..…….15
2.2 Institutional environment………...………17
2.2.1 Functions of institutions……….……18
2.2.2 Economic dimension of institutional development………....19
2.2.3 Political dimension of institutional development………...20
2.2.4 Social dimension of institutional development………..……21
2.2.5 Financial dimension of institutional development……….…22
3. Theoretical framework………..….….22
3.1 Start-ups and need for capital providers………...23
3.2 Start-ups and level of internationalization………..……….24
3.3 Institutional development……….25
3.3.1 Economic dimension of institutional development……….………...25
3.3.2 Political dimension of institutional development……….………...…..27
3.3.3 Social dimension of institutional development………....……….28
3.3.4 Financial dimension of institutional development………29
3.7 Conceptual framework……….31 4. Data………31 4.1 Database………...………....31 4.2 Sample………..……32 4.3 Variables………...…32 4.3.1 Dependent variable……….………...……32 4.3.2 Independent variable………....….32 4.3.3 Moderators……….…33 4.3.4 Level of internationalization……….……33
4.3.5 Level of institutional development………...….33
5. Method………..………..……..……….36
6. Result……….………..………..39
6.1 Descriptive statistics………...…..39
6.2 Correlation analysis all start-ups………..39
6.3 Correlation analysis domestic start-ups………....41
6.4 Multicollinearity………...………44
6.5 Hierarchical multiple regression analysis………..………..……45
6.5.1 Regression analysis all start-ups………...45
6.5.2 Regression analysis domestic start-ups……….……49
7. Discussion………..52
7.1 Findings………52
7.1.1 Capital providers and start-ups………..………....52
7.1.2 Level of internationalization………..………..….53
7.1.3 Level of institutional development………54
7.1.4 Economic dimension of institutional development………..…….55
7.1.5 Political dimension of institutional development………..56
7.1.6 Social dimension of institutional development………...58
7.1.7 Financial dimension of institutional development………....60
7.2 Limitations………..…..61
7.3 Future research……….…63
8. Conclusion……….64
9. References………...67
LIST OF TABLES AND FIGURES
Table 4-1: Description measurement of institutional development………..……….34
Table 4-2: Stepwise regression on performance of all start-ups………....38
Table 4-3: Stepwise regression on performance of domestic start-ups………..39
Table 4-4: Descriptive statistics and correlations of all start-ups………...…….41
Table 4-5: Descriptive statistics and correlations of domestic start-ups………43
Table 4-6: Collinearity all start-ups………...……….44
Table 4-7: Collinearity domestic start-ups………..……….………..44
Table 4-8: Regression on all start-ups………48
Table 4-9: Regression on domestic start ups…………..………51
Figure 2-1:The dynamics of institutions………20
ABBREVIATIONS
• MNE Multinational enterprise
• LON Liability of newness
• LOF Liability of foreignness
• ROA Return on asset
• GDP Gross domestic product
• R&D Research and development • IPR Intellectual property rights • EDB Ease of doing business
• CPI Corruption perception index
• SLR Strength of legal rights
• DC Domestic credits
1. INTRODUCTION
Many scholars consider start-ups as an important source of economic development (Gorman and Sahlman, 1989; McDougall, Oviatt and Shrader, 2003; Fritsch, 2013). Besides the economic impact, start-ups are also known for their innovation or their high extent of flexibility to adapt to a continually changing environment. These characteristics have an enhancing effect on the survival of start-ups (Musteen & Ahsan, 2013). It appears that start-ups represent the perfect new phenomenon that enhances both their internal and external environment.
However, recent researches report a high failure rate of start-ups1
(Blank, 2013; Huyghebaert, 2006; Zimmerman and Zeit, 2002). This failure rate is often caused by the financial problems of start-ups (Blank, 2013). To overcome financial problems, external financing and complementary assets are an important, if not a crucial factor for new ventures (Nofsinger & Wang, 2011; Teece, 1986).
Despite the crucial importance of investors for the survival of start-ups, attracting them presents a challenge. Investing in start-ups is largely associated with risks and the results that investors achieve when investing in start-ups are very mixed (Chesbrough, 2002). Scholars report at least two reasons of why investing in start-ups is associated with risks. First, start-ups often lack financial and operating history; hence they often have no reputation yet (Stinchcombe, 1965). This results in pronounced information asymmetry between the start-up and the capital provider, (Diamond, 1991), which makes is more difficult for capital providers to obtain a clear picture of the financial performance (Cai, Lia, Qian and Yu, 2015). Second, their corporate structure increases the risk of investing in start-ups, since the separation of ownership and managerial control, which characterizes the corporate structure of start-ups, represents a potential risk factor for capital providers. Considering the lack of history, lack of reputation, the level of entrepreneurial control and the high failure risk of start-ups, investors often take a substantial risk when deciding to fund a start-up (Huyghebaert and Van de Gucht, 2007). In short, start-ups often experience financial !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1!Huyghebaert (2006) reports that start-ups comprised 41% of the firms in Belgium that went bankrupt. In addition, Blank (2013)
constraints, which prevent them from developing their idea and launch that idea into the target market (Evans and Jovanovic, 1989). By attracting investors, start-ups can overcome their resource limitation; however, little is known about the impact of investors on the actual performance of start-ups, such as how their financial performance, measured as the average return on assets (ROA) improves by attracting investors. Therefore, by investigating the effect of capital providers on start-up performance, in the current study we address the first research question:
RQ1: What is the impact of capital providers on the financial performance of start-ups?
In addition, previous research states the importance of first the level of internationalization, and second, the institutional development of the host-country as two key factors that influence start-up performance and their ability to attract investors.
Literature still questions whether a global or a domestic start-up experiences a higher survival rate (Oviatt, McDougall and Loper, 1995). The no consensus exists in the literature as to whether a global or a domestic start-up experiences a higher survival rate (Oviatt, McDougall & Loper, 1995). Several scholars report advantages associated with international start-ups. These global start-ups often have aggressive growth objectives. They tend to internationalize in order to rapidly exploit technological advantages, acquire foreign technologies, and expand their customer base to foreign countries (Oviatt et al., 1995). International start-ups derive significantly competitive advantages because they have the ability to enact on opportunities to acquire resources, and they can sell their products wherever in the world these products have the highest value (Oviatt & McDougall, 1994).
However, international start-ups also involve several risks. Burgel and Murray (2000) report that start-ups that expand into foreign countries often have the tendency to expand into several foreign countries within a short time frame. Research supports this tendency as studies show an important disadvantage of international start-ups is their lower perception of risks (Acedo & Jones, 2007; Cavusgil & Knight, 2015). In summary, literature is still ambiguous about whether
international or domestic start-ups are more likely to experience a higher survival rate and therefore the subsequent research question states the following:
RQ2: To what extent the level of internationalization of the start-ups moderates the relationship between the capital providers and their financial performance?
Additionally to the level of internationalization, the institutional environment of start-ups is seen as an influencing factor on performance. The term institution knows various definitions. North (1990, p.3) defines institutions as “the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction”. In contrast with North (1990), Scott follows a different definition of institutions. Institutions are “cognitive, normative and regulative structures and activities that provide stability and meaning to social behavior” (Scot, 1995, p.33).
Despite the fact that both definitions of institutions have a different emphasis, they share the idea of the reduction of uncertainty. According to North (1990) institutions can reduce uncertainty by the emphasis on rules that shape human interaction. The institutions provide stability and structure to the environment (Ahlstrom and Bruton, 2006; North, 1990; Scott, 1995). Considering the fact that investors often experience high risks when investing in start-ups (Cai et al., 2007; Huyghebaeart and Van de Gucht, 2007) and that no firm is immune for impact of institutions (Peng et al., 2002) it is clear that the impact institutional environment is important to consider. Taken this into consideration the following research questions states:
RQ3: To what extent the level of institutional development of the country of origin of start-ups moderates the relationship between the capital providers and their financial performance?
In summary, start-ups stimulate economic growth, which makes them an integral part of the economy. However, due to their financial constraints, start-ups experience a high failure rate, which in turn emphasizes the importance of outside capital providers (Blank, 2013). Despite the given
importance of capital providers, limited research exists about the actual effect of capital providers on start-up performance. In addition, limited research exists about the relative important influence of institutional environment and the level of internationalization of start-ups on start-up performance.
We do so by exploring these research questions for a sample of 266 start-ups that originate from 24 different countries. In order to investigate the direct effect of capital providers on start-up performance, this study compares the amount invested in the start-up with the average return on assets (ROA) of the start-up. In order to determine a potential moderation effect of the level of internationalization, the influence of invested capital on the start-ups’ performance and whether this effect differs when the start-up is international or domestic is investigated. To determine the moderating effect of institutional development on the influence of capital providers on start-up performance, the effect of four different pillar of institutional development, namely economic, political, social and financial pillars are investigated.
In order to answer the research question and contribute to existing literature, the goals of this research is to provide (a) quantitatively measurable evidence of the direct effect of capital providers on start-up performance, (b) an enhanced understanding of the moderation effect of internationalization of the impact of capital providers on start-up performance, and (c) an enhanced understanding of institutional development as a moderator of the influence of capital providers on start-up performance. This study contributes in a practical way as well, as the goal is to give both start-ups and capital providers better insights into their risks and opportunities and how these factors influence start-up performance.
This thesis is structured as follows. First, relevant literature is reviewed, followed by explanation of the hypothesis, the methodology of the research and results. The thesis concludes with a conclusion, discussion, and future recommendations.
2. LITERATURE REVIEW
The subsequent section covers the definitions of all terms used in this thesis and what existing literature states about these terms.
2.1 Definition and characteristics of start-ups
Defining the concept start-up is not as easy as one might think. In general three different terms describe the concept of start-ups: new, active, and independent (Lurger & Koo, 2005). Following the definition of Lurger and Koo (2005, p), a start-up is a business entity, which did not exist before during a given time period (new), which starts hiring at least one paid employee during the given time period (active), and which is neither a subsidiary nor a branch of an existing firm (independent) (p.19). Start-ups are rapidly increasing, emerging business form (Oviatt & Shrader, 2003). This business form has several external and internal advantages. Regarding the external advantages, start-ups enhance economic growth (McDougall, Oviatt & Shrader, 2003; Fritsch, 2013). Start-ups are known to be entrepreneurial, which in turn leads to economic growth. Due to their focus on innovation, employment creation, and growth, start-ups benefit the economy, which in turns lead to an increasing number of fast growing firms and an increase in job creation (Birch, Haggerty & Parsons, 1995; Davidsson & Henrekson, 2002; Wilson, Wright & Altanlar, 2013).
With respect to the internal advantages, start-ups reduce the unemployment rate and stimulate their own growth (Wilson et al., 2013). The following advantage focuses on the start-ups’ emphasis on innovation and entrepreneurship (Gartner, 1985; Musteen and Ahsan, 2013). Due to this emphasis start-ups develop more flexible routines, have a lower level of formalization, and a stronger entrepreneurial culture. These three factors enable start-ups to adapt to the rapidly changing, global environment, which in turn enhances the performance of the start-ups and thus their survival rate (Gartner, 1985; Musteen and Ahsan, 2013).
2.1.1 Start-ups and capital providers
Despite all of the positive factors associated with start-ups, start-ups experience some difficulties regarding their finances. A long acknowledged characteristic of start-ups is that limited financial and human resources hamper the innovation of start-ups (Schumpeter, 1934). The internal finance theory explains the financial constraints of start-ups (Carpenter and Peterson, 2002). According to this theory, imperfections in capital markets create a wedge between the cost of internal and external finance. Information asymmetry between the start-up on the one side and the investor on the other side creates this wedge. Information asymmetry remains one of the reasons why investors tend to invest in start-ups less frequently as it increases the cost of monitoring for capital providers investing in start-ups (Cai et al., 2015).
When a start-up cannot attract investors, the start-up seeks external financing in the form of debt finance. However, debt finance has a detrimental effect on performance and options to grow are likely to diminish (Carpenter and Peterson, 2002). In addition, Huyghebaert (2006) reports that start-ups experience financial constraints that often only external finance such as bank loans, external financiers, and trade credit can resolve. Start-ups’ financial constraints can be resolved by external finance options such as outside capital providers.
Despite the importance of capital providers, start-ups find it difficult to attract outside investors. Investing in start-ups involves higher costs and risks, which might decrease the tendency of investors to invest (Cai et al., 2015). There are several causes underlying to the potential risk of investing in start-ups. First, start-ups are newly established firms; hence they do not have a reputation and no established relationship with suppliers. Therefore, limited information about the start-up exists, which increases the risks for the capital providers (Hughyebaert, 2006; Huyghebaeart & van de Gucht, 2007).
Another factor that increases the risk of investing in start-ups is asymmetric information between the start-up and the capital provider. When an asymmetrical distribution of information exists, the start-up has superior knowledge about the state of the start-up, whereas the potential
investor has inferior knowledge (Diamond, 1991). According to Shane and Stuart (2002), this asymmetry suggests that the start-ups might engage in opportunistic behavior by exploiting their superior knowledge.
2.1.2 Level of internationalization
International start-ups are an emerging phenomenon in the current globalized economy (Davidsson and Henrekson, 2002). The effects of a globalizing economy stimulate start-ups expand internationally and to start to compete on an international scale (Beamish & Lee, 2003). Oviatt and McDougall (2005) define international start-ups as “a business organization that from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries” (p.31). Often, international start-ups internationalize because they believe they will find a sustainable competitive advantage to transfer resources to other countries. These resources vary from raw material and finished products to knowledge and innovation (Oviatt & McDougall, 2005).
Internationalization has several ways in which it can benefit start-ups. Often, internationalization is seen as a tool to gain profit and growth outside the origin country (Han, 2007). This corresponds with the findings of Oviatt and McDougall (1994) who state that start-ups gain a competitive advantage due to their ability to acquire resources across borders and sell their products where they will receive the highest value.
However, scholars also associate international start-ups with several drawbacks. A first drawback is the liability of newness (LON), a concept that is identified by Stinchcombe (1965). Liability of newness (LON) emerges when firms, such as start-ups, have less experience and less legitimacy in the eyes of potential investors and other stakeholders (Baum and Oliver, 1996; Stinchcombe, 1965). A negative consequence of LON is the difficulty start-ups have to attract capital providers
Another consequence of their newness is that start-ups have less experience and often do not have all the necessary capabilities to expand abroad (Stinchcombe, 1965; Baum and Oliver, 1996). Due to the LON, start-ups have less experience in comparison with more mature firms. Zhou and Guillen (2015) posit the importance of experience in their home country as well as experience in all countries where a start-up operates, contributes to the quality of its strategy. International start-ups are often expanding abroad from inception, which means that they lack experience in both home and host-country. The combination of internationalization with a lack of experience might have a detrimental effect on the quality of strategy (Zhou & Guillen, 2015). This suggests that the level of internationalization also represents an important factor to consider for investors.
Another risk of expanding internationally is the liability of foreignness (Zaheer, 1995). Liability of foreignness (LOF) is defined as the costs of doing business abroad that result in a competitive disadvantage (Zaheer, 1995, p.342). These additional costs imply that the firm that is expanding always has a lower profitability compared to local incumbents. Four sources cause liability of foreignness. First, LOF can arise due to costs that are caused by spatial distance For example, LOF can consist of costs associated with products transferred across countries, but also costs that arise when headquarter monitors a subsidiary in another country. Second, costs emerge when a firm lacks familiarity and experience with the country it expands into. An example can be time and money a firm needs to invest to establish relations with the local authorities and local incumbents. Third, the type of cost that emerges due to LOF can be costs based on the host country. These costs involve a lack of legitimacy in that particular country. Fourth, costs connected to the home country of the firm, such as national restriction to expert particular knowledge or innovative products (Zaheer, 1995).
In sum, international start-ups are often expanding abroad from inception, which means that they lack experience in both home and host-country. The combination of internationalization with a lack of experience might have a detrimental effect on the quality of strategy (Zhou and Guillen,
2015). This implicates that the level of internationalization also is an important factor to consider for investors.
2.2 Institutional environment
The institutional environment and institutional development of a firm play a role in determining a firm’s performance. The institutional environment and firms do co-evolve with each other, and therefore, they influence each other to a large extent (North, 1990). The concept of institution follows different definitions of which scholars use two main definitions extensively. First, North (1990) defines institutions as, “the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction” (p. 3). The rules have the purpose of providing a definition of how the game should be played. In this respect, organizations are then defined as players (North, 1990). The second definition of institutions is provided by Scott (1995) who defines institutions as, “regulative, normative and cognitive structures and activities that provide stability and meaning to social behavior” (p.33). Considering these two definitions, institutions can be broadly classified as formal and informal constraints (Scott 1995). The formal constraints are categorized as political rules, judicial decisions, and economic contracts. In contracts, informal constraints are defined as norms of behavior with social sanctions when one does not follow the norms. Peng (2002) reveals entrepreneurship, a characteristic of start-ups, is driven by institutional environment. Therefore it may be the case that institutional environment might stimulate entrepreneurship and innovation, which in turns improves the financial performance of start-ups.
When considering investing in a start-up, the stability of an institutional environment plays an important role (Gartner, 1985; and Bruton, 2006). Institutions are of great importance due to their influence on norms, practices and on the operations and the success of firms (e.g. Meyer and Rowan, 1977). All these above mentioned factors increase the institutional stability and predictability, two factors that are important in assessing the risk of investment. The effect of
institutional stability and predictability is twofold, first reducing risk and second enhancing the chance on success for new ventures (Ahlstrom and Bruton, 2006).
Previous studies show that institutions are important for both investors and start-ups, due to its influence on strategy of firms and its widespread effect. No investor, start-up, or organization in general is immune for the institutional environment (Peng, 2002). Institutions interact with firms by providing guidance concerning which choices are acceptable and supportable for the institution. This guidance reduces uncertainty for firms in this institutional environment (Peng, 2002).
When determining a firm’s performance the institutional environment and institutional development cannot be ignored. Institutions and firms co-evolve alongside each other and therefore influence each other in a large extent (North, 1990). According to Dikova et al. (2010) skills and organizational learning are not the only factors that determine success of the organization. The governance structure of the broader environment is a crucial factor for organizational success (Dikova et al., 2010).
This study focuses on institutional environments rather than cultural differences between countries, because research shows that institutional environments drive entrepreneurship, rather than the national cultures of a country (Peng, 2002). The institutional framework can be categorized in several ways. In this study, four pillars of institutional development have been defined in alignment with the categories in the research of Chan, Isobe & Makino (2008): economic, political, social and financial pillars of institutional development.
2.2.1 Functions of institutions
Institutions manifest the formal and informal constraints in a specific environment (Peng et al., 2008). According to Peng et al. (2002), in general, industry conditions and the capabilities of the firm drive a firm’s strategic choices as well as the formal and informal constraints of the environment in which the firm operates. Even more, institutions directly determine the opportunities of firms to formulate and implement strategy and to create a competitive advantage
(Peng et al., 2008). Figure 2-1 illustrates the dynamics between institutions, firms and how they influence strategy. This figure illustrates the relevance of institutions on a company’s performance and why the institutions should be considered by investors of start-ups and by start-ups when deciding to internationalize.
Figure 2-1. The dynamics of institutions (Peng, 2002).
2.2.2 Economic dimension of institutional development
In general, the economic dimension of institutions consists of market intermediaries and suppliers of infrastructure. Market intermediates enhance and limit economic actions when necessary in order to regulate supply and demand (North, 1990). The purpose of market intermediaries is to create a balance between the supply and demand within different markets by providing information (e.g. financial market, product market). In order to create this balance, market intermediaries enhance communication between parties in the market and improve clarity in transactions.
A second characteristic of the economic dimension is the existence of infrastructure suppliers. Infrastructure has an important supporting role regarding economic transactions; hence they are important to consider (Chan et al., 2008). The economic dimension involves mainly the supporting infrastructure of a country. This supporting infrastructure can take various forms,
namely a physical, human or technological form (Chan et al., 2008). Physical infrastructure contributes the functioning of the local economy. It contains the basic facilities, installations and services, such as plants and roads. Human infrastructure consists of skilled labour and network ties. With these network ties, start-ups and firms in general have the possibility of gaining new knowledge (Chan et al., 2008). Technological infrastructure consists of technological development, which contributes to competitive advantage of a particular industry. Given the fact that start-ups are characterized by their focus on technology and innovation, technological infrastructure has important implications (Gartner, 1985; Musteen & Ahsan, 2013). The three forms of supporting infrastructure combined generate efficiency in the operations and knowledge acquisition (Chan et al., 2008).
2.2.3 Political dimension of institutional development
The second pillar of institutional development is the political dimension. Political institutions include governments and the constraints that the governments impose on key actors, such as businesses, politicians and political parties (Chan et al., 2008). For a long time, the impact of politics on the economic development has been established. Socio-political characteristics of a country affect the economic development of a country in several ways. First, politics are able to influence the economic development of a country by reducing the costs of bargaining, monitoring and the enforcement (Borner, Brunetti & Weder, 1995). Second, many political regulations are arbitrary (Kisgen & Strahan, 2010) by nature, meaning that these regulations can change. The fluctuations of political regulations increase the uncertainty of investors. To manage the increased uncertainty, investors often have to invest in safeguards and are less willing to take more risk investing in ups (Heniszh, 2000). As a result of this hazard, it might be more difficult for start-ups to attract investors.
2.2.4 Social dimension of institutional development
Social institutions are formed when members of a population or a certain group interact in an extensive manner. Practices develop in response to this extensive interaction, which every member should take into account (Scott, 1995). Social institutions often contain more subtle practices, which are hard to decipher as an outsider, and they have a significant impact on the trading with foreign countries (Ghemawat, 2001). An example is the tolerance of copy infringement.
Social institutions give guidance to what actions and practices are accepted in an institution. A specific characteristic of social institutions is their endurance and stability. These institutions are not likely to change, and therefore, when firms experience different social institutions, they have no choice other than to deal with it (Martin, 2004). When a country is known to have a weak social institutional development, the institutional development is likely to reduce across border economic activity. This reduction is among other factors caused by corruption and social conflicts (Ghemawat, 2001). Ghemawat (2001) illustrates the importance of social institutions by explaining their impact on across-border economic activity. A weakly developed social institution is often characterized by corruption and social conflicts, which in turn reduce economic activity across borders (Ghemawat, 2001).
Social institutions differ according to the country, and they can differ in the attitudes to work (Hofstede, 1980). Another factor that often differs per country is the productivity capacity (DiMaggio, 1994). These differences have a significant impact on the costs of operating in a foreign country (Chan et al., 2008). Therefore, this dimension is important to consider for investors when they decide whether or not to invest in a start-up but also whether this start-up is international or not.
2.2.5 Financial dimension of institutional development
Many scholars show that the financial institutions in a country have a great impact on the rate of economic growth (Beck, Demirgüç-Kunt and Levine, 2010). When the financial infrastructure of a country is well developed, the transaction costs are reduced (Bevan, Estrin and Meyer, 2004). This facilitates access for companies, which in turns can stimulate the economic growth. In addition, a strong developed financial infrastructure facilitates access to local finance for firms. This reduces uncertainty for foreign investors (Bevan et al., 2004). With reduced uncertainty, investors are more likely to invest, and therefore, start-ups will attract investors easily. Additionally, the velocity of demand will increase. When there is a strong developed financial infrastructure, the local customers have more access to bank credit, which in turn increases the consumer demand in a country (Bevan et al., 2004). This, in turn, increases the business opportunities for foreign investors. This, in turn, increases the business opportunities for foreign investors. Another factor that illustrates the importance of financial institutions is the allocation of capital regarding investments in industries, which in turn stimulates economic growth (Wurgler, 2000). Financial institutions often allocate the capital in a country. When this capital is allocated in an appropriate and efficient way this improves the economic growth. Appropriate and efficient allocation of capital means that a country invests more in growing industries and less in declining industries, which in turns attracts new investors (Wurgler, 2000).
3. THEORETICAL FRAMEWORK
The following section first explains the development of the proposed hypotheses concerning the relationship between capital providers and start-up performance. Second, this section elaborates on the hypothesized impact of the four different dimensions of institutional development and the impact of level of internationalization.
Extensive theories in literature emphasize the importance of outside capital providers for start-up performance. Start-ups often experience financial constraints, which prevent them from
developing their idea and launch that idea into the target market (Evans and Jovanovic, 1989). By attracting investors, start-ups can overcome their resource limitation. However, little is known about the impact of investors on the actual performance of start-ups, such as how their financial performance, measured as the return on assets (ROA) improves by attracting investors
3.1 Start-ups and need for capital providers
Literature clearly states that start-ups experience financial constraints in their early stage of development that often leads to high failure rates (Blank, 2013; Huyghebaert, 2006; Huyghebaert and Van de Gucht, 2007; Zimmerman and Zeit, 2002). These financial constraints emerge in different forms. Start-ups are known to have a low liquidity and, therefore, are to a large extent dependent on external financing. However, start-ups struggle to attract capital providers due to general lack of history, reputation, and start-ups are associated with information asymmetry (Baum & Oliver, 1991; Stinchcombe, 1965). All of these factors increase the risk for potential investors, as these investors often do not have a clear picture of the start-up’s situation.
Literature explains the importance of capital providers in resolving the financial constraints of start-ups (Teece, 1986; Nofsinger and Wang, 2011). In addition to resolving financial constraints, outside investors often also provide complimentary assets to start-ups. These assets are often provided in the form of expertise and infrastructure that are both necessary for product development (Park and Steensma, 2012). These complementary assets are often available in large corporations, but it takes time and funding to internally develop such assets, which is a reason why start-ups need to attract investors (Park & Steensma, 2012). Access to complementary assets is crucial to a start-up’s ability to commercialize a new technology in an efficient and timely manner (Teece, 1986).
The fact that start-ups often have to deal with financial constraints, illustrates the importance of outside capital providers (e.g. Teece, 1986; Nofsinger and Wang, 2011). Therefore the first hypothesis states the following:
Hypothesis 1: The amount of invested capital has a positive impact on the performance of start-ups
3.2 Start-ups and level of internationalization
The influence of internationalization on performance of multinational enterprises (MNEs) extensively studied but seems to underestimate the impact of internationalization on start-up performance (Oviatt and McDougal, 1994). In addition, no consensus exists on the survival rate of an international or a domestic start-up (Oviatt, McDougall & Loper, 1995). International start-ups often gain a competitive advantage by expanding internationally (Oviatt and McDougall, 1994). In contrast, international start-ups are linked with higher costs due to liability of newness and liability
of foreignness (Stinchcombe, 1965; Zaheer, 1995). Because international start-ups are associated
with both advantages and disadvantages, internationalization is an important factor to consider for
outside investors. However, little is known about the extent to which outside investors take the level of internationalization into account. Therefore, the goal of this thesis to fill this gap by investigating internationalization as a moderator of the effect of capital providers on start-up performance.
As stated earlier, international start-ups possess both advantages and disadvantages, which are important for capital providers to consider as they influence the performance of start-ups. The advantages are, in general, associated with characteristics of start-ups such as innovation, flexibility, and a larger market (Oviatt et al., 1995; Teece, Pisano and Shuen, 1997; Cavusgil & Knight, 2015). Due to this innovation and flexibility, start-ups are able to adapt to the continually changing environment and to foreign environments (Gartner, 1985; Musteen & Ahsan, 2013). Internationalization allows start-ups to sell their products where they will receive the highest value. Additionally, start-ups acquire resources where they will have to pay the least amount of money (Oviatt and McDougall, 1994). Due to these advantages, it is hypothesized that international start-ups attract more outside capital providers in comparison with their domestic counterparts. Therefore, the next hypothesis states the following:
Hypothesis 2: The level of internationalization of the start-ups has a positive effect on the relationship between amount of capital provided and the start-up performance, meaning that the higher the level of internationalization is, the stronger the effect of provided capital on the performance of start-ups.
3.3 Institutional development
Existing literature focuses to a large extent on institutional development of MNEs (Chan, Isobe & Makino, 2008; Dikova, Sahib & Witteloostuijn, 2010). However, start-ups are internationalizing increasingly and therefore also have to deal with the impact of institutional differences across nations (Oviatt & McDougall, 1994). ). In addition to the first two research gaps, the existing literature does not address the impact of institutional environment in the context of ups. Especially for outside capital providers the institutional environment of the targeted start-ups is crucial as institutions has the ability to provide stability and reduce risk (Ahlstrom and Bruton, 2006; North, 1990; Scott, 1995). The goal of the current study is to fill this gap by investigating the moderating effect of institutional environment on the relationship between capital providers and start-up performance.
3.3.1 Economic dimension of institutional development
The economic dimension of institutional development involves market intermediaries. Prior literature shows the important role of market intermediaries. When a country is characterized by a lack of reliable and sufficient market intermediaries, firms often experience problems in acquiring funding (Diamond, 1984; Khanna and Rivik, 2001). This suggests that when a country has a low developed economic institution, companies in this country have difficulties attracting outside investors to fund their ideas. However, when a country has a well-developed economic institution, the risk of investing is less, and therefore, a start-up is able to attract more investors
To measure the economic dimension of institutional development, we use two proxies, namely Gross Domestic Product (GDP) per capita and Research and Development (R&D) expenditure as a percentage of GDP. The GDP of a country consists monetary, market value of all final goods and services that produced in a country for a period of a year (Van den Berg, 2009). The level of GDP is a proxy in this study due to its usage for decisions concerning investments (Stark, 2010) and to assess the social welfare in a country (Van den Berg, 2009).
The second proxy is R&D expenditure. R&D expenditure is known for having significant positive effects on the economic development of a country, such as the long-term productivity of a country (Guellec and Van Pottelberghe de la Potterie (2004). This idea informs the following hypotheses.
Hypothesis 3a: The level of GDP of the start-ups’ origin country has a positive impact on the relationship between amount of capital provided and start-ups performance (H1), meaning that when political development of the country is higher, the impact of provided capital on start-up performance is stronger.
Hypothesis 3b: The level of R&D expenditure of the start-ups origin country has a positive impact on the relationship between amount provided capital and start-ups performance (H1), meaning that when political development of the country is higher, the impact of provided capital on start-up performance is stronger.
3.3.2 Political dimension of institutional development
The political dimension of an institution is important to consider for both start-ups and capita providers, as this dimension can both positively and negatively affects the performance of companies (Borner et al., 1995). First, the political has the ability to reduce costs of bargaining, monitoring and the enforcement, which in turns stimulates the economic development in a country.
When the costs of operating in a country are lower, this will have positive influence on the attraction of investors. On the other hand, many political regulations are arbitrary, meaning that they can differ per situation, per situation and thus in general can change (Kisgen & Strahan, 2010). The fluctuations of political regulations increase the uncertainty of investors, which in turn increase the risk.
In the context of start-ups, the political dimension might be even more important in comparison with MNEs. Start-ups innovation and depend in a large extent on the protection of their intellectual property rights (Clarysse & Bruneel, 2007). A way to measure the political dimension is ranking the “Ease of Doing Business” of the World Bank Group. Research shows that this ranking significantly influences the government, institutions and the media and is likely to increase the FDI of a country (Jayasuriya, 2011). When the FDI inflow in a country increases it will stimulate the economic development.
The governmental influence on firms is extensively supported in the literature. Governmental influence varies and may include rates and tariffs (Casson, 1983) and foreign exchange currency (Casson, 1982) to the protection of intellectual property rights (North, 1990). Intellectual Property rights stimulate the economic growth in a country, because IPR stimulates aggregates R&D with physical capital (Park and Ginarte, 1997). An example of importance of IPR concerns the IPR in China. The Chinese government provides limited protection of property rights which discourages firms from pursuing innovation and thus from operating competitively (North, 1990). These political factors guide the following hypothesis:
Hypothesis 4a: The intellectual property rights of the start-up’s origin country has a positive impact on the relationship between amount of capital provided and a start-up’s performance (H1), meaning that if the amount IPR is higher, the impact of provided capital on start-up performance is stronger.
Hypothesis 4b: The ease of doing business in the start-up’s origin country has a positive impact on the relationship between amount of capital provided and a start-up’s performance (H1), meaning that when it is easier to conduct business, the impact of provided capital on start-up performance is stronger.
3.3.3 Social dimension of institutional development
Social institutions in a country are formed by history, and therefore, the social dimensions differ based on the institutions (Ghemawat, 2001). Differences in social institutions can vary from cultural norms and value of religion to the language. All of these differences often increase the costs of doing business abroad (Zaheer, 1995). The social differences, by nature, last a long time, which suggests that firms have to adapt to these social institutions.
Social institutions influence firms significantly. A country’s social and cultural attributes determine how people interact with each other as well as with firms. Ghemawat (2001) states that even social and cultural attributes have an impact on international trade. For example, trade between countries that share the same language is three times higher than companies that differ in language.
Ghemawat (2001) states that even social and cultural attributes have an impact on international trade. A clear example of this impact is that trade between countries that share the same language is three times higher than companies that differ in language. The following conclusions can be drawn: (a) social institutions differ per institution; (b) these difference are likely to be long-lasting, so firms have to adapt to these social institutions; (c) social institutions have a great effect on across-border business activities. Therefore, social institutions influence a firm’s performance. These conclusions guide the following hypotheses:
We use the proxies Strength of Legal Rights and the Corruption Perception Index to measure the social dimension of institutional development. First, strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and
lenders and thus facilitate lending. In addition legal rights have the function to protect investors (Chen, Chen and Wei, 2009). The research of Chen et al. (2009) shows that investors are often willing to pay more to work with firms that are good in corporate governance, especially in countries where the legal rights are not well protected.
The CPI is used as a proxy because corruption is a determinant that has great influence on the level of uncertainty and costs of operating in a certain country (Cuervo-Cazurra, 2008). A higher score on CPI corresponds with a lower level of corruption. Taken all this together, the next two hypotheses summarize:
Hypothesis 5a: The strength of legal rights in the start-up’s origin country has a positive impact on the relationship between amount of capital provided and a start-up’s performance (H1), meaning that when the legal rights are stronger, the impact of provided capital on start-up performance is also stronger.
Hypothesis 5b A high corruption perception index in the start-up’s origin country has a positive impact on the relationship between amount provided capital and start-ups performance (H1), meaning that when the country scores higher on the corruption index, the impact of provided capital on start-up performance is stronger.
3.3.4 Financial dimension of institutional development
The financial dimension of the institutional development of a country influences the quality of formal institutions (Bevan et al., 2004). A more financially developed structure leads to several advantages for firms such as reduction of transaction costs (Bevan et al., 2004). This might have a positive influence on the across-border economic activities. When the financial dimension is well developed in an institution, the institution is associated with less risk. When an institution
experiences a strong development in the financial dimension, it is more likely to have a higher inflow of FDI (Bevan et al., 2004).
To assess the development of the financial dimension we use the proxies FDI inflow and domestic creditA high inflow of FDI leads to several positive results. FDI is known to have a positive influence on the economic growth of a country (Borensztein, De Gregoria & Lee, 1998). Second, FDI increases the transfer of technology. When FDI is higher, you can often find the combination of advances management skills and modern technology. This increases the transfer of technology (Borensztein et al., 1998). Third, when a country receives more FDI, the domestic investments increase as well, which in turns stimulates the economic growth. Therefore, the effect of financial dimension development of an institution has several important advantages for both firm as the institutions
The second proxy of the financial dimension is the domestic credit. When the domestic credit is low, firms in that country often seek capital abroad for extra funding. This often has a detrimental effect as the debt in a country increases (Harrison & McMillan, 2003). The effect of domestic credit provided by the financial sector of a certain country is studied in this thesis. When a higher amount of domestic credit is provided by the financial sector, firms have fewer reasons to try to find funding abroad. This leads to lower debts in a country, which is a positive characteristic when companies want to conduct business in a country (Harrison and McMillan, 2003). Thus when a start-up originates from a country that is characterized by a strong developed financial infrastructure, this start-up can attract more investors. This idea guides the following hypotheses:
Hypothesis 6a: A high domestic credit in the start-up’s origin country has a positive impact on the relationship between amount of capital provided and a start-up’s performance (H1), meaning that when the domestic credit is higher, the impact of provided capital on start-up performance is stronger.
Hypothesis 6b: A high FDI inflow in the start-up’s origin country has a positive impact on the relationship between amount of capital provided and a start-up’s performance (H1), meaning that when there is more FDI inflow in the start-up’s origin country, the impact of provided capital on start-up performance is stronger.
3.5 Conceptual framework
All of the hypotheses guiding this study are summarized in the conceptual model.
Figure 3-2. Theoretical framework
4. DATA
4.1 Database
Because a start-ups is still a new phenomenon and is rapidly developing information can be difficult scarce and difficult to obtain. To obtain data about new ventures the database Orbis is used. Orbis is a database that has information on worldwide private companies and includes: Company financials in a standardized formed, financial strengths indicators, ratings, directors and contacts, stock data, private equity data and portfolios, patents, detailed corporate and ownership structures,
and industry research (Orbis, 2015).
4.2 Sample
The sample of this research contains 266 new ventures located in the OECD countries during the year 2013. The inclusion criteria that are used to retrieve information about these new ventures are the following: all companies with an active status (active or default of payment); all companies that are incorporated in 2013; all companies are categorized by a small status, meaning that they do not have more than fifteen employees. Their operating revenue has a maximum of 1 million euros and the total assets of these new ventures have a maximum value of 2 million euros. Start-ups’ data was obtained from the database Orbis. Data regarding the institutional development of the 24 countries was retrieved from International Monetary Fund, World Bank, OECD, International Property Rights Index and the Transparency International.
4.3 Variables
4.3.1 Dependent variable
The dependent variable that we use in this thesis is the performance of the start-ups. This variable is operationalized as the return on assets (ROA). The average ROA per company is calculated (based on the number of ROA and divided by the amount of years of which there was data available). Many scholars use ROA as a measurement of performance because ROA is seen as an established accounting performance indicator that measures the overall financial performance of a firm (e.g. Roman, Hayibor and Agle, 1999; DeYoung, 2005; Cucculelli and Micucci, 2008).
4.3.2 Independent variable
This conceptual model knows one independent variable, which is operationalized as the amount of capital that is invested in the first year that the start-up is established. Financial capital is an important resource for start-ups to establish themselves and is therefore also considered as an
important source of start-up performance (Cassar, 2004). In addition, shareholder funds are known for having an important influence on performance (Demirguc‐Kunt, Detragiache, and Merrouche, 2013); hence we use this measurement in this thesis. The amount of money that shareholder funds invested in the start-up is limited to the first year of the start-up. The data is obtained from Orbis in which the number of shareholder funds is specified per start-up.
4.3.3 Moderators
The relationship between the amounts of capital provided on the ROA of start-ups is a relationship that is established extensively in the literature. In this thesis we expect that two different moderators will influence the relationship of capital providers on start-up performance. The proposed moderators are (1) the level of internationalization of start-ups and (2) the institutional development of the country where the start-up originates.
4.3.4 Level of internationalization
The moderator level of internationalization is constructed as follows: first both the amount of capital invested (IV) and the level of internationalization (numbers countries in which the start-up has a subsidiary) are centralized. Centralization takes place by subtracting the mean from the variable. Secondly the centralized variables are multiplied by each other to form a product variable, which is the moderator in the variable.
4.3.5 Level of institutional development
Institutional developments is assumed to have a great effect on the entrepreneurial activity in a country, which in turn is assumed to have an effect on the national economic performance of a country (Davidsson and Henrekson, 2002). To measure the level of institutional development of the OECD countries that are represented in the sample, we use 8 national characteristics as proxies for economic, political, social and financial institutions. All proxies are described in table 4-1. The data
on country level is drawn from the World Bank and are supplemented by data obtained from the International Monetary Fund, the Transparency International and the Intellectual Property Right Alliance.
Institutional development is measured along four dimensions. The dimensions are political, financial, economic and social. The political, economic and social dimensions of institutional development are used by Chan et al (2008) to measure the institutional development. This study follows the same dimensions identified by Chan et al (2008) and adds a fourth, financial dimensions to the measurements.
Table 4-1: Description measurements of institutional development
Dimension Variables Description Source
Economic GDP Gross Domestic Product International Monetary Fund
R&D expenditure Expenditure for research and development OECD Political International Property
Right
The Index focuses on three areas: Legal and Political Environment (LP), Physical Property Rights (PPR), and Intellectual Property Rights (IPR).
IPR alliance Ease of doing business The index averages the country's percentile rankings on 10 topics
covered in the World Bank's Doing Business.
World Bank Group Social Strength of legal rights
index
The degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending.
World Bank Group Corruption Perception
index (CPI)
The CPI measures the perceived levels of public sector countries and territories. The CPI is based on 13 different expert and business surveys
Transparency International Financial Domestic credit (% of
GDP)
Domestic credit provided by financial sector. World Bank Group FDI inflow (BoP,
current $)
Foreign direct investment are the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor
World Bank Group
Economic dimension of institutional development
Economic institutional development is measured by using GDP and R&D expenditure as proxies. Secondly, R&D expenditure is used as proxy because it is known for having significant positive effects on the economic development of a country, such as the long-term productivity of a country (Guellec and Van Pottelberghe de la Potterie (2004). R&D expenditure is measured as a percentage of GDP and is retrieved from the website of the OECD.
Political dimension of institutional development
and the ease of doing business as proxies. The data regarding intellectual property rights is retrieved from the IPR Alliance. For quite some time research is showing that intellectual property rights are an important determinant for economic growth in countries (Gould & Grube, 1996), which is the reason, we chose it to use as a proxy for institutional development. The second proxy used to measure the institutional development on a political dimension is the ease of doing business index. This variable is operationalized as a ranking of countries based on their ease of doing business. The score can vary from 1 to 189. Countries that score high on this index are categorized as: being easy doing business with. This means that their regulatory institutional environment is more beneficial for the start and process of a new operation (World Bank Group).
Social dimension of institutional development
The third dimension of institutional development is the social dimension. This dimension is operationalized using the strength of legal rights and the corruption perception index of the OECD countries. The CPI index is used because corruption is a determinant that has great influence on the uncertainty and costs of operating in that country (Cuervo-Cazurra, 2008). Cuervo-Cazurra (2008) is followed in this thesis by obtaining the corruption data from the Transparency International. The second factor that is used is the strength of legal rights of the countries. Strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. The index ranges from 0 to 12, with higher scores indicating that these laws are better designed to expand access to credit.
Financial dimension of institutional development
Lastly using domestic credit and FDI inflow as proxies for institutional development operationalizes the financial dimension. Domestic credit provided by the financial sector as a percentage of GDP. These variables include all credit to various sectors. The financial sectors include monetary authorities and deposit money banks and other financial corporations as well
where data is available. For the measurement of financial dimensions of institutional development we chose to use foreign direct investment (FDI) inflow as a proxy. Bevan, Estrin and Meyer (2004) state that FDI is positively related to the quality of formal institutions
4.3.6 Control variables
In this model we identify several control variables that might bias the results. First, on country level we control for the effect of inflation level of a country. According Bilal, Saeed Gull and Akram (2013) the inflation level has a significant negative effect on the ROA of companies.
Second, on industry level we control for industry type. The nature of an industry affects the decision-making of start-up regarding expanding into different countries (Porter, 1980; Oviatt and McDougall, 1994). The global integration of an industry affects the geographical scope of a start-up that is internationalizing. An example of this is Nokia. Nokia first expanded into Scandinavia because the phone network was similar in all Nordic countries. After expanding into Nordic countries, Nokia decided to expand in a global manner (Kuivalainen, Lindqvist, Saarenketo and Äijö, 2007). The start-ups all operate in three different in studies, namely: Goods and Production, Financial and Service.
Third, on firm level we control for firm size as previous literature show that firm size has either a positive (Li, Du, Armstrong and Clark, 2012) or negative effect on performance (Eisenberg, Sundgren and Wells, 1998).
5. METHOD
We use a hierarchical multiple linear regression to test the effect of the moderators on the performance of start-ups, while at the same time controlling for the variables that are discussed earlier.
When the data was collected from the database, all start-ups with incomplete data were excluded from the database. After exclusion 279 start-ups remained in the dataset. Next, we checked whether there were counter-indicative items were present in the data about the institutional
development. All items were measured in the same direction, meaning that the higher the score of percentage, ranking of US dollars corresponds with a better institutional development. Therefore it was not necessary to recode any of the variables.
To test the moderating effect of the institutional development on start-up performance 8 proxies are used to illustrate four dimensions of institutional development (economic, political, social and financial). In order to be able to test all the variables, meaning the control variables, the moderator institutional development, which has 8 proxies and the independent variable we created 11 models to test the effect on the financial performance on start-ups. We tested each pillar of institutional development separately using two proxies per pillar.
With the multiple regression analysis the effect of the independent variable on the dependent variable for different levels of moderators is tested. In this study this means that the effect of the shareholder funds on the ROA is tested for different levels of two moderators, namely the level of internationalization of the start-up and the institutional development. Therefore the theoretically regression equation can be described as:
ROA = β0 + β1 * industry type + β2 * firm size + β3 * inflation + β4 * shareholder funds + β5 * (level of internationalization*shareholder funds) + β6 * (institutional development components*shareholder funds) + ε
β0 is the intercept, β1 to β3 relate to the control variables and β4 is the amount of money that the capital providers invested in the start-up in the first year. β5 is the first moderator, namely the level of internationalization. This is measured as the number of countries in which the start-up is operated. As we hypothesize that the level of internationalization is a moderator, this is multiplied with the independent variable shareholder funds. β6 is the level of institutional development. In the above formulate we incorporate the entire concept of institutional development to give a readable and comprehensive formula. However, in the multiple regressions analysis the moderator
institutional development is measured on four dimensions, which in turn are measured by two proxies per dimension. Each proxy is individually tested and multiplied with the independent variable, shareholder funds.
First, we conducted a regression analysis to test the effect of capital providers (measured by shareholder funds) on start-up performance (measured by ROA), without including any other variables. Second, the control variables were tested. Afterwards, the independent, dependent and the control variables were tested together in model 3. From model 4 to model 12 all proxies of the moderators are tested individually in relation to the dependent, independent and control variables. The steps of the hierarchical regression for all start-ups and domestic start-ups are explained respectively in table 4-2 and 4-3.
Regarding the regression of only domestic start-ups the same models were used, with exception of the level of internationalization, because here the level of internationalization is zero.
Table 4-2. Stepwise regression on performance of all start-ups
Model Control variable IV Moderator 1 Institutional development
Funds (IV)
Internationalization
GDP R&D IPR EDB CPI SLR DC FDI
Inflation Industry type Firm size 1 X 2 X X X 3 X X X X 4 X X X X X 5 X X X X 6 X X X X 7 X X X X 8 X X X X 9 X X X X 10 X X X X 11 X X X X 12 X X X X
