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How Do Legal Differences and Learning Affect Financial Contracts?

Author

Listed:
  • Kaplan, Steven N.

    (University of Chicago)

  • Martel, Frederic

    (UBS Global Asset Management)

  • Strömberg, Per

    (Swedish Institute for Financial Research)

Abstract

We analyze venture capital (VC) investments in twenty-three non-U.S. countries and compare them to U.S. VC investments. We describe how the contracts allocate cash flow, board, liquidation, and other control rights. In univariate analyses, contracts differ across legal regimes. 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. The results suggest that U.S.-style contracts are efficient across a wide range of legal regimes. The evolution of contracts is consistent with financial contracting theories and costly learning.

Suggested Citation

  • Kaplan, Steven N. & Martel, Frederic & Strömberg, Per, 2004. "How Do Legal Differences and Learning Affect Financial Contracts?," SIFR Research Report Series 28, Institute for Financial Research.
    • Handle: RePEc:hhs:sifrwp:0028
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Venture capital; Financial contracting; Law and finance; Corporate governance;
    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

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