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How Do Legal Differences and Learning Affect Financial Contracts?

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  • Steven N. Kaplan
  • Frederic Martel
  • Per Stromberg

Abstract

We analyze venture capital (VC) investments in twenty-three non-U.S. countries and compare them to VC investments in the U.S. 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 U.S.-style contracts regardless of legal regime. In most specifications, legal regime becomes insignificant controlling for VC sophistication. VCs who use U.S.-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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10097.

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Date of creation: Nov 2003
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Publication status: published as Kaplan, Steve N., Fredric Martel, and Per Strömberg. “How Do Legal Differences and Learning Affect Financial Contracts?” Journal of Financial Intermediation, 2007.
Handle: RePEc:nbr:nberwo:10097

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