Disclosure, Venture Capital and Entrepreneurial Spawning

Journal of International Business Studies, Forthcoming

40 Pages Posted: 6 Mar 2012

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

April M. Knill

Florida State University College of Business; Florida State University - College of Law

Multiple version iconThere are 2 versions of this paper

Date Written: January 23, 2012

Abstract

Venture capital funds have been facing increasing regulatory scrutiny since the 2007 financial crisis, particularly with respect to calls for increased disclosure requirements. In this paper we examine the effect of more stringent securities regulation on the supply and performance of venture capital as well as new business creation (i.e., entrepreneurial spawning). Using country- and investment-level data from 34 countries over the years 2000-2008, we find that more stringent securities regulation is positively associated with the supply and performance of venture capital around the world. More stringent securities regulation is also positively associated with entrepreneurial spawning induced by venture capital. Among different forms of securities regulation, disclosure stands out as having the most economically meaningful impact, which casts doubt on the oft repeated objections to disclosure in VC – that it would stifle the VC industry because secrets would have to be revealed to competitors and the public. These findings are robust to numerous robustness checks for endogeneity. The policy implications are clear regardless of endogeneity concerns, however: VC and entrepreneurship markets are enabled, not curtailed, in countries with better disclosure standards when one compares the existing differences in disclosure around the world and changes thereto over the 2000-2008 period.

Keywords: Venture capital, Spawning, Disclosure, Securities regulation

JEL Classification: G24, G28, K22

Suggested Citation

Cumming, Douglas J. and Knill, April M., Disclosure, Venture Capital and Entrepreneurial Spawning (January 23, 2012). Journal of International Business Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2016540 or http://dx.doi.org/10.2139/ssrn.2016540

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

April M. Knill (Contact Author)

Florida State University College of Business ( email )

Tallahassee, FL 32306-1042
United States
(850) 644-2047 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

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