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How Do Legal Differences and Learning Affect Financial Contracts?

40 Pages Posted: 12 Jan 2004  

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: December 2003

Abstract

We analyse venture capital (VC) investments in 23 non-US countries and compare them to VC investments in the US. 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 US-style contracts regardless of legal regime. In most specifications, legal regime becomes insignificant controlling for VC sophistication. VCs who use US-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.

JEL Classification: G24, G32

Suggested Citation

Kaplan, Steven N. and Martel, Frederic and Strömberg, Per, How Do Legal Differences and Learning Affect Financial Contracts? (December 2003). CEPR Discussion Paper No. 4161. Available at SSRN: https://ssrn.com/abstract=487044

Steven Neil Kaplan

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4513 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Frederic Martel

UBS Global Asset Management ( email )

Zurich, CH-8098
Switzerland
+41 1 235 56 93 (Phone)
+41 1 235 55 90 (Fax)

University of Lausanne IMD

Lausanne, Vaud CH-1015
Switzerland

Per Stromberg (Contact Author)

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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