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Institutional Barriers to Financing Technology-based Small Firms through Venture Capital Mechanism: A Study to Explore the Incentives for Investment in Iran

Motavaseli Mahmood, Shojaei Saeed, Bitaab Ali, Hasti Chitsazan and Ghanbar Mohammadi Elyasi
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Motavaseli Mahmood: Faculty of Economics, University of Tehran, Iran
Shojaei Saeed: Faculty of Entrepreneurship Management, University of Tehran, Iran,
Bitaab Ali: Research Institute for Science, Technology and Industry Policy, Sharif University of Technology, Iran,
Hasti Chitsazan: Faculty of Entrepreneurship Management, University of Tehran, Iran,
Ghanbar Mohammadi Elyasi: Faculty of Entrepreneurship Management, University of Tehran, Iran.

International Journal of Economics and Financial Issues, 2018, vol. 8, issue 1, 184-195

Abstract: There is a consensus among scholars that access to financial sources is vital for Technology-Based Small Firms (TBSFs). Venture Capital (VC) financing is the most appropriate external financial source for them. However, VC industry is underdeveloped in most developing countries, e.g. Iran. This paper seeks to discover the causes for “lack of incentives for VC investment” based on institutional theory. In this regard, institutional obstacles constraining the incentives for VC investment in Iran were investigated through conducting 31 detailed interviews. The results suggest that the institutional set-up in Iran motivates the investment in tangible assets, short term projects, large investment schemes and intransparent project rather than TBSFs. Many institutional factors were identified which decrease the incentives for VC investment as: Information disclosure institutions, tax regulations, labor regulations, fiscal institutions, political institutions, commerce and competition regulation, property rights and financial market regulation. Finally, results are discussed and concluded in table 3.

Keywords: Venture Capital; Technology-Based Small Firm; Incentives for investment. (search for similar items in EconPapers)
JEL-codes: G24 G28 G31 G38 O31 (search for similar items in EconPapers)
Date: 2018
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