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Venture Capital and Corporate Governance

  • Franklin Allen
  • Wei-ling Song

We consider data from 16 Asian countries, 16 European countries and the US to investigate the relationship between venture capital and corporate governance. There are five main findings. First, the variable measuring law and order is negatively related to the importance of venture capital finance. Second, the allocation of investment across different stages and different industries depends more on macroeconomic factors than on corporate governance variables. Third, in Low-GDP countries the allocation of venture capital is greater for low technology industries than for high technology industries. Fourth, venture capital boomed and became significant in many countries during the stock market boom or "bubble" of the late 1990's. Finally, a comparison of Asian and European venture capital shows that in Asia there was more investment in early stage projects while in Europe there was more investment in late stage projects. Also, in Europe there was more investment in medical and biotechnology industries.

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File URL: http://fic.wharton.upenn.edu/fic/papers/03/0305.pdf
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Paper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 03-05.

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Date of creation: Sep 2002
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Handle: RePEc:wop:pennin:03-05
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  1. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2002. "Funding growth in bank-based and market-based financial systems: evidence from firm-level data," Journal of Financial Economics, Elsevier, vol. 65(3), pages 337-363, September.
  2. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
  3. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
  4. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-50, July.
  5. Mike Wright, 1998. "Venture Capital and Private Equity: A Review and Synthesis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(5&6), pages 521-570.
  6. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  7. 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.
  8. Lin, Timothy H. & Smith, Richard L., 1998. "Insider reputation and selling decisions: the unwinding of venture capital investments during equity IPOs," Journal of Corporate Finance, Elsevier, vol. 4(3), pages 241-263, September.
  9. Simon Johnson & Peter Boone & Alasdair Breach & Eric Friedman, 1999. "Corporate Governance in the Asian Financial Crisis," William Davidson Institute Working Papers Series 297, William Davidson Institute at the University of Michigan.
  10. Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, vol. 27(2), pages 473-521, October.
  11. Gorton, Gary & Schmid, Frank A., 2000. "Universal banking and the performance of German firms," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 29-80.
  12. Beck, Thorsten & Levine, Ross, 2002. "Industry growth and capital allocation:*1: does having a market- or bank-based system matter?," Journal of Financial Economics, Elsevier, vol. 64(2), pages 147-180, May.
  13. Wurgler, Jeffrey, 2000. "Financial markets and the allocation of capital," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 187-214.
  14. 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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