Legality and Venture Capital Exits

Posted: 9 Nov 2009

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Grant Fleming

Continuity Capital Partners

Armin Schwienbacher

SKEMA Business School

Multiple version iconThere are 3 versions of this paper

Date Written: 2006


Explores theeffects of a legal system onthe exit from venture capital investments.Data were collected from 468venture-backed companies spanning twelve different Asia-Pacific countries thatoperated in the years between 1989 and 2001.Of these companies, 78exited by an initial public offering (IPO), 200 by private sale, 55 bywrite-off, and the remaining 135 had not exited. The five vehicles for venture capital exit studied are IPOs, acquisitions,secondary sales, buybacks, and write-offs. One finding is thatAsia-Pacific venture capitalists are not able to time markets with respect topublic market conditions --many of the firms did not exit until after thebubble crash in April of 2000.Further, the higher a country's legalityindex, the more likely that ventures are to pursue an IPO. Of particular importance is that none of the results showed that an increasein the likelihood of an IPO was directly associated with the size of acountry's stock market.In fact, this analysis has shown that acountry's legal system is more directly related to IPOs than the stockmarket. (SRD)

Keywords: Legal systems, Stock markets, Law, Financing, Venture capital, Exit strategies, Initial public offerings (IPO)

Suggested Citation

Cumming, Douglas J. and Fleming, Grant Alan and Schwienbacher, Armin, Legality and Venture Capital Exits (2006). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN:

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States


Grant Alan Fleming

Continuity Capital Partners ( email )

GPO Box 314
Canberra, Australian Capital Territory 2601

Armin Schwienbacher

SKEMA Business School ( email )

Avenue Willy Brandt
Euralille, 59777


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