How Do Legal Differences and Learning Affect Financial Contracts?
Steven N. Kaplan
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
UBS Global Asset Management; University of Lausanne IMD
Swedish House of Finance
NBER Working Paper No. w10097
We analyze venture capital (VC) investments in twenty-three non-U.S. countries and compare them to VC investments in the U.S. We describe how the contracts allocate cash flow, board, liquidation, and other control rights. In univariate analyses, contracts differ across legal regimes. At the same time, 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. Financial contracting theories in the presence of fixed costs of learning, therefore, appear to explain contracts along a wide range of legal regimes.
Number of Pages in PDF File: 38working papers series
Date posted: November 17, 2003
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