The Legislative Road to Silicon Valley

41 Pages Posted: 28 Nov 2003

See all articles by John Armour

John Armour

University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Douglas J. Cumming

Florida Atlantic University

Multiple version iconThere are 3 versions of this paper


Must policymakers seeking to replicate the success of Silicon Valley's venture capital market first replicate other US institutions, such as deep and liquid stock markets? Or can legal reforms alone make a significant difference? In this paper, we compare the economic and legal determinants of venture capital investment, fundraising and exits. We introduce a cross-sectional and time series empirical analysis across 15 countries and 13 years of data spanning an entire business cycle. We consider three legal variables. First, we employ an aggregate index of legal and fiscal variables that, unlike those used in previous studies, pertains specifically to venture capital. Secondly, we investigate the role of government subsidy programs designed to jump start venture capital markets. Thirdly, the paper focuses on the role of bankruptcy law, hitherto ignored in the literature. We show that the legal environment matters as much as the strength of stock markets; that government programmes more often hinder than help the development of private equity, and that temperate bankruptcy laws stimulate entrepreneurial demand for venture capital. Our results provide generalizable lessons for legal reform.

Keywords: venture capital, law and finance, bankruptcy

JEL Classification: G24, G28, G33, G38, H25

Suggested Citation

Armour, John and Cumming, Douglas J., The Legislative Road to Silicon Valley. Oxford Economic Papers, Vol. 58, pp. 596-635, 2006, Available at SSRN: or

John Armour (Contact Author)

University of Oxford - Faculty of Law ( email )

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Oxford, OX1 3UL
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University of Oxford - Said Business School ( email )

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Oxford, OX1 1HP
Great Britain


European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels


Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States


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