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Misconduct Risks, Legal Enforcement, and Venture Capital Networks

European Financial Management, forthcoming

70 Pages Posted: 6 Dec 2021 Last revised: 9 Dec 2021

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University; Birmingham Business School; European Corporate Governance Institute (ECGI)

Ali Mohammadi

Copenhagen Business School - Department of Strategy and Innovation; Danish Finance Institute; Royal Institute of Technology (KTH) - Center of Excellence for Science and Innovation Studies

Simona Zambelli

University of Florence

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2021

Abstract

This study investigates the differing role of enforcement on the formation of venture capital (VC) syndication networks. We conjecture that public enforcement, with strong investigative powers against any syndicate member, discourages the formation of denser syndication networks due to misconduct risk by a member. By contrast, private enforcement, with strong disclosure and liability standards, enables denser syndication networks, through clear liability rules, standardized securities contracts, and cost sharing amongst syndicate members. Our VC data from 31 countries show a negative impact of public enforcement on VC networks, and partially support the positive impact of private enforcement depending on cultural conditions.

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

JEL Classification: G24, G32

Suggested Citation

Cumming, Douglas J. and Mohammadi, Ali and Zambelli, Simona, Misconduct Risks, Legal Enforcement, and Venture Capital Networks (December 1, 2021). European Financial Management, forthcoming, Available at SSRN: https://ssrn.com/abstract=3975531

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/douglascumming/bio?authuser=0

Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/douglas-cumming

Ali Mohammadi

Copenhagen Business School - Department of Strategy and Innovation ( email )

Kilen
Frederiksberg, 2000
Denmark

Danish Finance Institute ( email )

Royal Institute of Technology (KTH) - Center of Excellence for Science and Innovation Studies ( email )

Drottning Kristinas väg 30
Stockholm, SE-100 44
Sweden

Simona Zambelli (Contact Author)

University of Florence ( email )

Department of Economics and Management
Via delle Pandette 9
FIRENZE, FI 50127
Italy

HOME PAGE: http://https://www.unifi.it/p-doc2-0-0-A-3f2c352f362e31.html

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