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The Legal Road To Replicating Silicon Valley

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  • John Armour
  • Douglas Cumming

Abstract

Must policymakers seeking to replicate the success of Silicon Valley’s venture capital market first replicate other US institutions, such as deep and liquid stock markets? Or can legal reforms alone make a significant difference? In this paper, we compare the economic and legal determinants of venture capital investment, fundraising and exits. We introduce a cross-sectional and time series empirical analysis across 15 countries and 13 years of data spanning an entire business cycle. We show that the legal environment matters as much as the strength of stock markets; that government programmes more often hinder than help the development of private equity, and that temperate bankruptcy laws stimulate entrepreneurial demand for venture capital. Our results provide generalizable lessons for legal reform.

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Bibliographic Info

Paper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp281.

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Date of creation: Apr 2004
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Handle: RePEc:cbr:cbrwps:wp281

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Web page: http://www.cbr.cam.ac.uk/

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Keywords: venture capital; law and finance; bankruptcy;

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References

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  1. Josh Lerner, 2002. "Boom and bust in the venture capital industry and the impact on innovation," Economic Review, Federal Reserve Bank of Atlanta, issue Q4, pages 25-39.
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Citations

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Cited by:
  1. Da Rin, Marco & Nicodano, Giovanna & Sembenelli, Alessandro, 2006. "Public policy and the creation of active venture capital markets," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1699-1723, September.
  2. Luukkonen, Terttu, 2006. "Venture Capital Industry in Finland - Country Report for the Venture Fun Project," Discussion Papers 1003, The Research Institute of the Finnish Economy.
  3. Bhatia, Jai, 2009. "The impact of insolvency laws on venture capital," MPRA Paper 21346, University Library of Munich, Germany.

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