SIFR Research Report Series, Institute for Financial Research
Steven N. Kaplan
How Do Legal Differences and Learning Affect Financial Contracts?
(), Frederic Martel and Per Strömberg
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.
Keywords: Venture capital; Financial contracting; Law and finance; Corporate governance; (follow links to similar papers)
JEL-Codes: G24; G32; (follow links to similar papers)
44 pages, September 15, 2004
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