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Making Your Own Rules: Contractual Flexibility and Entrepreneurial Success

Author

Listed:
  • Beaumont, Paul

    (McGill University - Desautels Faculty of Management)

  • Matray, Adrien

    (Princeton University)

  • Hombert, Johan

    (HEC Paris - Finance Department)

Abstract

Can reducing contracting costs between entrepreneurs and investors improve entrepreneurial success? We assemble a novel dataset of company bylaws covering the near-universe of firms incorporated in France between 2004 and 2012. We show that many new firms, including non-VC-backed firms, tailor their bylaws by modifying default provisions on ownership and control rights, while cash-flow rights are less frequently customized. Such tailoring correlates with proxies for asymmetric information and entrepreneur sophistication. Exploiting a 2008 French reform that lowered the cost of bylaws customization, we show that increased contractual flexibility led to higher equity financing at creation and to persistent increases in investment, employment, and revenue growth.

Suggested Citation

  • Beaumont, Paul & Matray, Adrien & Hombert, Johan, 2026. "Making Your Own Rules: Contractual Flexibility and Entrepreneurial Success," HEC Research Papers Series 1631, HEC Paris, revised 01 Jul 2026.
    • Handle: RePEc:ebg:heccah:1631
    DOI: 10.2139/ssrn.6551658
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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