Advanced Search
MyIDEAS: Login to save this paper or follow this series

Transaction Structures in the Developing World: Evidence from Private Equity

Contents:

Author Info

  • Lerner, Josh
  • Schoar, Antoinette

Abstract

While variations in public securities markets across nations have attracted increasing scrutiny, private financings have received little attention. But in developing nations, the bulk of financings are private ones. This paper analyzes 210 private equity transactions in developing countries. We find that unlike in the U.S., where convertible preferred securities are ubiquitous, in developing nations a much broader array of securities are employed and private equity investors often have fewer contractual protections. The choice of security appears to be driven by the legal and economic circumstances of the nation and the private equity group. Investments in common law nations are structured similar to those in the U.S., being less likely to employ common stock or straight debt, and more likely to use preferred stock with a variety of covenants. By way of contrast, in nations where the rule of law is less established, private equity groups are likely to use common stock and own the majority of the firm's equity if the investment encounters difficulties. Private equity groups based in the U.S. and U.K. rely more on preferred securities but also adapt transactions to local conditions. These contractual differences appear to have real consequences: larger transactions with higher valuations are seen in common law countries. These findings suggest that the structure of a country's legal system affects private contracts and cannot easily be undone by (bi-lateral) private solutions.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/1721.1/5070
Download Restriction: no

Bibliographic Info

Paper provided by Massachusetts Institute of Technology (MIT), Sloan School of Management in its series Working papers with number 4468-04.

as in new window
Length:
Date of creation: 28 May 2004
Date of revision:
Handle: RePEc:mit:sloanp:5070

Contact details of provider:
Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
Phone: 617-253-2659
Web page: http://mitsloan.mit.edu/
More information through EDIRC

Order Information:
Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA

Related research

Keywords:

Other versions of this item:

References

References listed on IDEAS
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.:
as in new window
  1. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2001. "The Regulation of Entry," Working Paper Series rwp01-015, Harvard University, John F. Kennedy School of Government.
  2. Kaplan, Steven & Martel, Frederic & Strömberg, Per Johan, 2003. "How Do Legal Differences and Learning Affect Financial Contracts?," CEPR Discussion Papers 4161, C.E.P.R. Discussion Papers.
  3. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Legal Determinants of External Finance," Working Paper 19443, Harvard University OpenScholar.
  4. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
  5. Kaplan, Steven & Strömberg, Per Johan, 2000. "Financial Contracting Theory Meets The Real World: An Empirical Analysis Of Venture Capital Contracts," CEPR Discussion Papers 2421, C.E.P.R. Discussion Papers.
  6. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2002. "Courts: the Lex Mundi Project," NBER Working Papers 8890, National Bureau of Economic Research, Inc.
  7. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
  8. Gompers, Paul & Lerner, Josh, 2000. "Money chasing deals? The impact of fund inflows on private equity valuation," Journal of Financial Economics, Elsevier, vol. 55(2), pages 281-325, February.
  9. Gompers, Paul A, 1995. " Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance, American Finance Association, vol. 50(5), pages 1461-89, December.
  10. Simon Johnson & John McMillan & Christopher Woodruff, 2001. "Courts and Relational Contracts," NBER Working Papers 8572, National Bureau of Economic Research, Inc.
  11. Jeng, Leslie A. & Wells, Philippe C., 2000. "The determinants of venture capital funding: evidence across countries," Journal of Corporate Finance, Elsevier, vol. 6(3), pages 241-289, September.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Bottazzi, L. & Da Rin, M. & Hellmann, T., 2004. "Active financial intermediation: Evidence on the role of organizational specialization and human capital," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3159708, Tilburg University.
  2. Hege, Ulrich & Palomino, Frederic & Schwienbacher, Armin, 2009. "Venture capital performance: the disparity between Europe and the United States," MPRA Paper 39551, University Library of Munich, Germany.
  3. Cinzia COLAPINTO, 2007. "A way to foster innovation: a Venture capital district. From Silicon Valley and Route 128 to Waterloo Region," Departmental Working Papers 2007-24, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  4. Schertler, Andrea & Tykvová, Tereza, 2009. "Venture capital and internationalization," ZEW Discussion Papers 09-055, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Schertler, Andrea & Tykvová, Tereza, 2012. "What lures cross-border venture capital inflows?," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1777-1799.
  6. Irving Fisher Committee, 2009. "Proceedings of the IFC Conference on "Measuring financial innovation and its impact", Basel, 26-27 August 2008," IFC Bulletins, Bank for International Settlements, number 31, October -.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:mit:sloanp:5070. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.