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How Do Legal Differences and Learning Affect Financial Contracts?Steven N. KaplanUniversity of Chicago - Booth School of Business; National Bureau of Economic Research (NBER) Frederic MartelUBS Global Asset Management; University of Lausanne IMD Per StrömbergStockholm School of Economics; University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); Stockholm School of Economics - Department of Finance December 2003 CEPR Discussion Paper No. 4161 Abstract: We analyse venture capital (VC) investments in 23 non-US countries and compare them to VC investments in the US. 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 US-style contracts regardless of legal regime. In most specifications, legal regime becomes insignificant controlling for VC sophistication. VCs who use US-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: 40 JEL Classification: G24, G32 working papers seriesDate posted: January 12, 2004Suggested CitationContact Information
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