Legal Framework Quality and Success of (Different Types of) Venture Capital Investments

Posted: 30 Nov 2017

See all articles by Tereza Tykvova

Tereza Tykvova

University of Hohenheim - Faculty of Business, Economics and Social Sciences

Date Written: November 27, 2017

Abstract

Drawing on an analysis of 8,270 companies from 41 countries, I explore the relationship between success of venture capital investments and legal frameworks in the investment countries. Legal framework quality is related to success, but the effect varies with the deal type. First, the significant and positive relationship between legal framework quality and success is more pronounced for domestic deals than for international deals. Further investigations suggest that international venture capitalists often exit their portfolio companies abroad, particularly when these companies are located in countries with inefficient legal frameworks. In addition, the results lend support to the view that international venture capitalists have a greater experience and reputation. Second, legal framework quality seems to be more important for success in syndicated than in standalone deals. This finding supports the view that a sound legal framework may improve the benefit–cost balance of syndication, while an inefficient legal framework may tend to increase costs in syndicated deals.

Keywords: G24, G32, K4

JEL Classification: Venture capital, Legal framework, Success, Internationalization, Syndication

Suggested Citation

Tykvova, Tereza, Legal Framework Quality and Success of (Different Types of) Venture Capital Investments (November 27, 2017). Journal of Banking and Finance, Vol. 87, No. 333-350, 2018, Available at SSRN: https://ssrn.com/abstract=3078072

Tereza Tykvova (Contact Author)

University of Hohenheim - Faculty of Business, Economics and Social Sciences

Germany

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