How Do Legal Differences and Learning Affect Financial Contracts?

38 Pages Posted: 17 Nov 2003 Last revised: 30 Oct 2014

See all articles by Steven N. Kaplan

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Frederic Martel

UBS Global Asset Management; University of Lausanne IMD

Per Strömberg

Swedish House of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: November 2003

Abstract

We analyze venture capital (VC) investments in twenty-three non-U.S. countries and compare them to VC investments in the U.S. We describe how the contracts allocate cash flow, board, liquidation, and other control rights. In univariate analyses, contracts differ across legal regimes. At the same time, however, more experienced VCs implement U.S.-style contracts regardless of legal regime. In most specifications, legal regime becomes insignificant controlling for VC sophistication. VCs who use U.S.-style contracts fail significantly less often. Financial contracting theories in the presence of fixed costs of learning, therefore, appear to explain contracts along a wide range of legal regimes.

Suggested Citation

Kaplan, Steven Neil and Martel, Frederic and Stromberg, Per, How Do Legal Differences and Learning Affect Financial Contracts? (November 2003). NBER Working Paper No. w10097. Available at SSRN: https://ssrn.com/abstract=468784

Steven Neil Kaplan (Contact Author)

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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Frederic Martel

UBS Global Asset Management ( email )

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+41 1 235 55 90 (Fax)

University of Lausanne IMD

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

Per Stromberg

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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