Misconduct Risks, Legal Enforcement, and Venture Capital Networks
European Financial Management, forthcoming
70 Pages Posted: 6 Dec 2021 Last revised: 9 Dec 2021
Date Written: December 1, 2021
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: Suggested Citation