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

Abstract

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: https://ssrn.com/abstract=473593 or http://dx.doi.org/10.2139/ssrn.473593

John Armour (Contact Author)

University of Oxford - Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom
+44 1865 281616 (Phone)

HOME PAGE: http://www.law.ox.ac.uk/people/john-armour

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

HOME PAGE: http://www.sbs.ox.ac.uk/about-us/people/john-armour

European Corporate Governance Institute (ECGI) ( email )

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

HOME PAGE: http://www.ecgi.org

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
950
Abstract Views
3,672
rank
25,657
PlumX Metrics