Abstract

http://ssrn.com/abstract=1505901
 
 

Citations



 


 



Venture Capital and the Structure of Capital Markets: Banks Versus Stock Markets


Bernard S. Black


Northwestern University - School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI)

Ronald J. Gilson


Stanford Law School; Columbia Law School; European Corporate Governance Institute (ECGI)

1998

University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship

Abstract:     
Explores the strong link between the venture capital (VC) market and the stock market-centered capital market. Contrasts this with the bank centered capital markets of such countries as Germany and Japan, which allot more firm control to banks. The United States has a strong venture capital industry focused on early-stage financing of high-technology companies while in Germany, e.g., the venture capital industry is almost nonexistent, and exit strategies for venture capitalists differ in that country, with its lesser emphasis on the stock market. In the United States, VC fund managers have developed strategies in which they efficiently exit their investments, and the analysis herein considers the initial public offering (IPO) to be the point at which venture capitalists will exit. It is assumed that the entrepreneur places strong importance on control of his or her company. Often though, this control cannot be retained at the time of financing by an inexperienced entrepreneur. These entrepreneurs can regain control if the company is successful through an IPO exit of the venture capitalists. Regaining control is usually through an implicit contract over control between the entrepreneur and the venture capitalist that results from the entrepreneur's success. The implication of this framework is that the success of early stage venture capital financing is linked to the availability of VC exit and return of control to the entrepreneur. The venture capital market will be impaired in countries where the only option for exit is by acquisition, thus leaving the entrepreneur without the preferred control. Analyses of the VC markets in Japan, the United Kingdom, Canada, and Israel are also presented, with explanations for venture capital market variations by country. (SRD)

Keywords: Banks, Stock markets, Firm governance, Initial public offerings (IPO), Firm control, Early stage financing, Exit strategies, Early stage capital, Venture capital, Financial markets

Accepted Paper Series


Not Available For Download

Date posted: November 17, 2009  

Suggested Citation

Black, Bernard S. and Gilson, Ronald J., Venture Capital and the Structure of Capital Markets: Banks Versus Stock Markets (1998). Journal of Financial Economics, Vol. 47, Issue 3, p. 243-277 1998. Available at SSRN: http://ssrn.com/abstract=1505901

Contact Information

Bernard S. Black (Contact Author)
Northwestern University - School of Law ( email )
375 E. Chicago Ave
Unit 1505
Chicago, IL 60611
United States
512-503-2784 (Phone)

Northwestern University - Kellogg School of Management
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-5049 (Phone)
European Corporate Governance Institute (ECGI)
Brussels
Belgium
Ronald J. Gilson
Stanford Law School ( email )
559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650-723-0614 (Phone)
650-725-0253 (Fax)
Columbia Law School ( email )
435 West 116th Street
New York, NY 10025
United States
212-854-1655 (Phone)
212-854-7946 (Fax)
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
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