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Is it the Law or the Lawyers? Investment Covenants around the World

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  • Douglas Cumming
  • Sofia Johan

Abstract

"This paper introduces a new dataset from 50 private investment funds from 17 countries around the world. We analyse the frequency of use of investment covenants imposed by institutional investors governing the activities of private investment fund managers in areas pertaining to investment decisions, investment powers, types of investments, fund operations and limitations on liability. While the data indicate a role for country legality in affecting the frequency of use of fund covenants, the data further indicate that the presence of legally trained managers has a more pronounced role in affecting the use of covenants. As private equity and venture capital investment increases across Europe and elsewhere, our results indicate that legal practice factors will matter more than the legal setting for the establishment of covenants governing new funds." Copyright 2006 The Authors Journal compilation (c) 2006 Blackwell Publishing Ltd.

Suggested Citation

  • Douglas Cumming & Sofia Johan, 2006. "Is it the Law or the Lawyers? Investment Covenants around the World," European Financial Management, European Financial Management Association, vol. 12(4), pages 535-574.
  • Handle: RePEc:bla:eufman:v:12:y:2006:i:4:p:535-574
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Joseph McCahery & Erik Vermeulen, 2012. "Private equity regulation: a comparative analysis," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 16(2), pages 197-233, May.
    2. Sofia Johan & Dorra Najar, 2010. "The Role of Corruption, Culture, and Law in Investment Fund Manager Fees," Journal of Business Ethics, Springer, vol. 95(2), pages 147-172, September.
    3. Douglas Cumming & Sofia Johan, 2013. "The IPO as an exit strategy for venture capitalists: regional lessons from Canada with international comparisons," Chapters,in: Handbook of Research on IPOs, chapter 21, pages 465-502 Edward Elgar Publishing.
    4. Yaxuan Qi & John Wald, 2008. "State Laws and Debt Covenants," Journal of Law and Economics, University of Chicago Press, vol. 51(1), pages 179-207, February.
    5. Valérie Revest & Alessandro Sapio, 2012. "Financing technology-based small firms in Europe: what do we know?," Small Business Economics, Springer, vol. 39(1), pages 179-205, July.
    6. Cumming, Douglas & Schmidt, Daniel & Walz, Uwe, 2010. "Legality and venture capital governance around the world," Journal of Business Venturing, Elsevier, vol. 25(1), pages 54-72, January.
    7. Cumming, Douglas J. & Grilli, Luca & Murtinu, Samuele, 2017. "Governmental and independent venture capital investments in Europe: A firm-level performance analysis," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 439-459.
    8. Douglas Cumming & Sofia Johan, 2007. "Socially Responsible Institutional Investment in Private Equity," Journal of Business Ethics, Springer, vol. 75(4), pages 395-416, November.
    9. Douglas Cumming & Sofia Johan, 2007. "Advice and monitoring in venture finance," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 21(1), pages 3-43, March.
    10. Daniel Hain & Sofia Johan & Daojuan Wang, 2016. "Determinants of Cross-Border Venture Capital Investments in Emerging and Developed Economies: The Effects of Relational and Institutional Trust," Journal of Business Ethics, Springer, vol. 138(4), pages 743-764, November.
    11. repec:dau:papers:123456789/5830 is not listed on IDEAS
    12. Nifo, Annamaria & Scalera, Domenico & Vecchione, Gaetano, 2016. "What do you want to be when you grow up? Local institutional quality and the choice of the fields of study in Italy (2004-2007)," MPRA Paper 69907, University Library of Munich, Germany.
    13. Sofia Johan & Dorra Najar, 2011. "The Role of Law, Corruption and Culture in Investment Fund Manager Fees," Post-Print halshs-00639925, HAL.
    14. Kaplan, Steven N. & Martel, Frederic & Stromberg, Per, 2007. "How do legal differences and experience affect financial contracts?," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 273-311, July.
    15. Colleen Honigsberg & Sharon Katz & Gil Sadka, 2014. "State Contract Law and Debt Contracts," Journal of Law and Economics, University of Chicago Press, vol. 57(4), pages 1031-1061.
    16. Douglas Cumming, 2007. "Financing Entrepreneurs Better Canadian Policy for Venture Capital," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 247, April.
    17. Armin Schwienbacher, 2008. "Venture capital investment practices in Europe and the United States," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 22(3), pages 195-217, September.

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