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How Do Legal Differences and Learning Affect Financial Contracts?

  • Kaplan, Steven N.

    ()

    (University of Chicago)

  • Martel, Frederic

    (UBS Global Asset Management)

  • Strömberg, Per

    ()

    (Swedish Institute for Financial Research)

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.

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Paper provided by Institute for Financial Research in its series SIFR Research Report Series with number 28.

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Length: 44 pages
Date of creation: 15 Sep 2004
Date of revision:
Handle: RePEc:hhs:sifrwp:0028
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  8. La Porta, Rafael & Lopez-de-Silanes, Florencio & Schleifer, Andrei & Vishny, Robert, 2001. "Investor Protection and Corporate Governance," Working Paper Series rwp01-017, Harvard University, John F. Kennedy School of Government.
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  15. Oliver Hart & John Moore, 1997. "Default and Renegotiation: A Dynamic Model of Debt," Harvard Institute of Economic Research Working Papers 1792, Harvard - Institute of Economic Research.
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  17. Jeng, Leslie A. & Wells, Philippe C., 2000. "The determinants of venture capital funding: evidence across countries," Journal of Corporate Finance, Elsevier, vol. 6(3), pages 241-289, September.
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  19. Mayer, Colin & Schoors, Koen & Yafeh, Yishay, 2001. "Sources of Funds and Investment Strategies of Venture Capital Funds: Evidence from Germany, Israel, Japan and the UK," CEI Working Paper Series 2001-24, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  20. Black, Bernard S. & Gilson, Ronald J., 1998. "Venture capital and the structure of capital markets: banks versus stock markets," Journal of Financial Economics, Elsevier, vol. 47(3), pages 243-277, March.
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  23. Fama, Eugene F & Jensen, Michael C, 1983. "Agency Problems and Residual Claims," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 327-49, June.
  24. Steven N. Kaplan & Per Stromberg, 2001. "Venture Capitalists As Principals: Contracting, Screening, and Monitoring," NBER Working Papers 8202, National Bureau of Economic Research, Inc.
  25. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
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