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How Do Legal Differences and Learning Affect Financial Contracts?

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Author Info
Kaplan, Steven
Martel, Frederic
Strömberg, Per Johan

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Abstract

We analyse venture capital (VC) investments in 23 non-US countries and compare them to VC investments in the US. We describe how the contracts allocate cash flow, board, liquidation, and other control rights. In univariate analyses, contracts differ across legal regimes. At the same time, however, more experienced VCs implement US-style contracts regardless of legal regime. In most specifications, legal regime becomes insignificant controlling for VC sophistication. VCs who use US-style contracts fail significantly less often. Financial contracting theories in the presence of fixed costs of learning, therefore, appear to explain contracts along a wide range of legal regimes.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4161.

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Date of creation: Dec 2003
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Handle: RePEc:cpr:ceprdp:4161

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Related research
Keywords: brokerage; capital and owner ship structure; financing policy; investment banking; venture capital;

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Find related papers by JEL classification:
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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References listed on IDEAS
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bienz, Carsten & Walz, Uwe, 2007. "Evolution of Decision and Control Rights in Venture Capital Contracts: An Empirical Analysis," Discussion Papers 2007/13, Department of Finance and Management Science, Norwegian School of Economics and Business Administration. [Downloadable!]
    Other versions:
  2. Julia Hirsch & Uwe Walz, 2006. "Why Do Contracts Differ between VC Types? Market Segmentation versus Corporate Governance Varieties," CFS Working Paper Series 2006/12, Center for Financial Studies. [Downloadable!]
  3. Laura Bottazzi & Marco Da Rin & Thomas Hellmann, 2007. "The Importance of Trust for Investment: Evidence from Venture Capital," Working Papers 325, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  4. Lerner, Josh & Schoar, Antoinette, 2004. "Transaction Structures in the Developing World: Evidence from Private Equity," Working papers 4468-04, Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
    Other versions:
  5. Schertler, Andrea & Tykvová, Tereza, 2006. "Rivals or partners? : Evidence from Europe's international private equity deals," ZEW Discussion Papers 06-91, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  6. Bottazzi, L. & Da Rin, M. & Hellmann, T., 2008. "What is the Role of Legal Systems in Financial Intermediation? Theory and Evidence," Discussion Paper 2008-014, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
    Other versions:
  7. Jun Qian & Philip E. Strahan, 2005. "How Law and Institutions Shape Financial Contracts: The Case of Bank Loans," NBER Working Papers 11052, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Josh Lerner & Antoinette Schoar, 2004. "Transaction Structures in the Developing World," NBER Working Papers 10348, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Douglas Cumming & Daniel Schmidt & Uwe Walz, 2004. "Legality and Venture Governance Around the World," CFS Working Paper Series 2004/17, Center for Financial Studies. [Downloadable!]
  10. Christian Keuschnigg & Søren Nielsen, 2004. "Taxation and Venture Capital Backed Entrepreneurship," Asia-Pacific Financial Markets, Springer, vol. 11(4), pages 369-390, August. [Downloadable!] (restricted)
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  11. Carsten Bienz & Julia Hirsch, 2006. "The Dynamics of Venture Capital Contracts," CFS Working Paper Series 2006/11, Center for Financial Studies. [Downloadable!]
    Other versions:
  12. S. Manigart & A. Lockett & M. Meuleman & M. Wright & H. Landström & H. Bruining & P. Desbrières & U. Hommel, 2004. "Why Do Venture Capital Companies Syndicate?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/226, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
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