Investment Syndication Networks and International Differences in Legal Enforcement and Culture

Abstract

Being part of an investment syndicate offers various network benefits, but also exposes risks that someone in the network acts in a manner that violates securities laws. These risks differ depending on the ways in which securities laws are enforced. Public enforcement, with strong investigative powers and strong group sanctions, discourages the formation of syndication networks. Private enforcement, with strong disclosure and liability standards, encourages the formation of syndication networks. We present evidence strongly consistent with the negative impact of public enforcement on network density, and partial support for the positive impact of private enforcement depending on cultural conditions.

Keywords: Networks, Venture Capital, Syndication, Legal Enforcement, Culture

JEL Classification: G23, G24, G28