Entrepreneurial R&D activities are vitally important for innovation, and, consequently for economic development. However, it is very hard to finance young R&D-oriented companies due to the pronounced information asymmetry problems and institutional issues. Venture capital investment has been recognized as one of the most effective ways in dealing with the agency problems associated with R&D financing and promoting innovation. Many nations started to imitate the ‘Silicon Valley Model’ since the mid-1980s with the expectation to stimulate entrepreneurial R&D activities. Nonetheless, the development of the venture capital markets is far from homogeneous around the world, and, even within the United States. This phenomenon raises extensive interests from researchers to find out the factors that affect the outcomes of transplanting venture capital investment to different countries.

The role of institutions played on financial activities has long been debated in the literature. Some researchers suggest that the differences in institutions, especially the divergence in financial and legal systems, are the major factors that impact on corporate performance and business behaviors across countries (La Porta et al., 1997, 1998; Allen & Gale, 1999; Rajan&Zingales; 2003). From cross country studies, it is known that VCs’ investment behaviors depend on the institutions of the countries where they operate. Researchers suggest that stronger institutions lead to more active VCs’ involvements in the management of their portfolio companies and more usage of innovative governance mechanisms, and, consequently lead to more developed venture capital markets (Kaplan et al., 2003; Cummings et al., 2003; Jeng and Wells, 2000).