Legality and Venture Capital Governance Around the World
Douglas J. Cumming
York University - Schulich School of Business
University of Frankfurt, CEPRES Center of Private Equity Research
Goethe University Frankfurt - Institute of Economics; Center For Financial Studies (CFS); Goethe University Frankfurt - Research Center SAFE
February 1, 2004
Journal of Business Venturing, Vol. 25, No. 1, pp. 54-72, 2010
We analyze governance with a new dataset on investments of venture capitalists in 3848 portfolio firms in 39 countries from North and South America, Europe and Asia spanning 1971-2003. We provide evidence that cross-country differences in legality, including legal origin and accounting standards, have a significant impact on the governance structure of investments in the VC industry: better laws facilitate faster deal screening and deal origination, a higher probability of syndication and a lower probability of potentially harmful co-investment, and facilitate investor board representation of the investor and the use of securities that do not require periodic cash flows prior to exit. We also show country-specific differences exist apart from legal and economic development.
Number of Pages in PDF File: 40
Keywords: Venture Capital, Corporate Governance, Syndication, Entrepreneurial Finance
JEL Classification: G24, G31, G32
Date posted: May 18, 2010
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