Legality and Venture Governance Around the World

38 Pages Posted: 16 Apr 2008 Last revised: 10 Sep 2008

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Daniel Schmidt

University of Frankfurt, CEPRES Center of Private Equity Research

Uwe Walz

Goethe University Frankfurt - Institute of Economics; Center For Financial Studies (CFS); Leibniz Institute for Financial Research SAFE

Date Written: January 1, 2008

Abstract

We analyze governance with a new dataset on investments of venture capitalists in 3848 portfolio firms in 39 countries from North and South America, Europe and Asia spanning 1971-2003. We provide evidence that cross-country differences in legality, including legal origin and accounting standards, have a significant impact on the governance structure of investments in the VC industry: better laws facilitate faster deal screening and deal origination, a higher probability of syndication and a lower probability of potentially harmful co-investment, and facilitate investor board representation of the investor and the use of securities that do not require periodic cash flows prior to exit. We also show country-specific differences exist apart from legal and economic development.

Keywords: Venture Capital, Corporate Governance, Syndication, Entrepreneurial Finance

JEL Classification: G24, G31, G32

Suggested Citation

Cumming, Douglas J. and Schmidt, Daniel and Walz, Uwe, Legality and Venture Governance Around the World (January 1, 2008). Journal of Business Venturing, Forthcoming. Available at SSRN: https://ssrn.com/abstract=537243 or http://dx.doi.org/10.2139/ssrn.537243

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

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

Daniel Schmidt

University of Frankfurt, CEPRES Center of Private Equity Research ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Uwe Walz

Goethe University Frankfurt - Institute of Economics ( email )

Postfach 81
D-60054 Frankfurt
Germany

Center For Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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