Making Your Own Rules: Contractual Flexibility and Entrepreneurial Success

Paul Beaumont, Adrien Matray and Johan Hombert
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Paul Beaumont: McGill University - Desautels Faculty of Management
Adrien Matray: Princeton University
Johan Hombert: HEC Paris - Finance Department

No 1631, HEC Research Papers Series from HEC Paris

Abstract: Can reducing contracting costs between entrepreneurs and investors improve entrepreneurial success? We assemble a novel dataset of company bylaws covering the near-universe of firms incorporated in France between 2004 and 2012. We show that many new firms, including non-VC-backed firms, tailor their bylaws by modifying default provisions on ownership and control rights, while cash-flow rights are less frequently customized. Such tailoring correlates with proxies for asymmetric information and entrepreneur sophistication. Exploiting a 2008 French reform that lowered the cost of bylaws customization, we show that increased contractual flexibility led to higher equity financing at creation and to persistent increases in investment, employment, and revenue growth.

Keywords: Financial contracting; Entrepreneurship; Equity financing (search for similar items in EconPapers)
JEL-codes: G32 K22 L14 L16 M13 (search for similar items in EconPapers)
Pages: 96 pages
Date: 2026-04-20, Revised 2026-07-01
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1631

DOI: 10.2139/ssrn.6551658

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