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Legal framework quality and success of (different types of) venture capital investments

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  • Tykvová, Tereza

Abstract

Drawing on an analysis of 8,270 companies from 41 countries, I explore the relationship between success of venture capital investments and legal frameworks in the investment countries. Legal framework quality is related to success, but the effect varies with the deal type. First, the significant and positive relationship between legal framework quality and success is more pronounced for domestic deals than for international deals. Further investigations suggest that international venture capitalists often exit their portfolio companies abroad, particularly when these companies are located in countries with inefficient legal frameworks. In addition, the results lend support to the view that international venture capitalists have a greater experience and reputation. Second, legal framework quality seems to be more important for success in syndicated than in standalone deals. This finding supports the view that a sound legal framework may improve the benefit–cost balance of syndication, while an inefficient legal framework may tend to increase costs in syndicated deals.

Suggested Citation

  • Tykvová, Tereza, 2018. "Legal framework quality and success of (different types of) venture capital investments," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 333-350.
  • Handle: RePEc:eee:jbfina:v:87:y:2018:i:c:p:333-350
    DOI: 10.1016/j.jbankfin.2017.10.015
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    More about this item

    Keywords

    Venture capital; Legal framework; Success; Internationalization; Syndication;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior

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