How Do Legal Differences and Learning Affect Financial Contracts?

Steven Kaplan (), Frederic Martel and Per Stromberg
Additional contact information
Frederic Martel: UBS Global Asset Management, Postal: Gessnerallee 3-5, CH-8005, Zurich

No 28, SIFR Research Report Series from 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.

Keywords: Venture capital; Financial contracting; Law and finance; Corporate governance (search for similar items in EconPapers)
JEL-codes: G24 G32 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2004-09-15
New Economics Papers: this item is included in nep-acc and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: How Do Legal Differences and Learning Affect Financial Contracts? (2003)
Working Paper: How Do Legal Differences and Learning Affect Financial Contracts? (2003)
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