How Do Legal Differences and Learning Affect Financial Contracts?

43 Pages Posted: 21 Jun 2004

See all articles by Steven N. Kaplan

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); University of Chicago - Polsky Center for Entrepreneurship

Per Strömberg

Swedish House of Finance; ECGI; CEPR

Frederic Martel

UBS Global Asset Management; University of Lausanne IMD

Multiple version iconThere are 3 versions of this paper

Date Written: June 16, 2004

Abstract

We analyze venture capital (VC) investments in twenty-three non-U.S. countries and compare them to U.S. VC investments. We describe how the contracts allocate cash flow, board, liquidation, and other control rights. In univariate analyses, contracts differ across legal regimes. 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. The results suggest that U.S.-style contracts are efficient across a wide range of legal regimes. The evolution of contracts is consistent with financial contracting theories and costly learning.

Keywords: Venture Capital, financial contracting, law and finance, capital and ownership structure

JEL Classification: G24, G32

Suggested Citation

Kaplan, Steven Neil and Stromberg, Per and Martel, Frederic, How Do Legal Differences and Learning Affect Financial Contracts? (June 16, 2004). Available at SSRN: https://ssrn.com/abstract=557007 or http://dx.doi.org/10.2139/ssrn.557007

Steven Neil Kaplan

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI) ( email )

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University of Chicago - Polsky Center for Entrepreneurship

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Per Stromberg (Contact Author)

Swedish House of Finance ( email )

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Sweden

ECGI ( email )

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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

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Lausanne, Vaud CH-1015
Switzerland

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