Is it the Law or the Lawyers? Investment Covenants Around the World

40 Pages Posted: 11 Aug 2006

See all articles by Sofia Johan

Sofia Johan

Florida Atlantic University - Finance; Tilburg Law and Economics Center (TILEC)

Douglas J. Cumming

Florida Atlantic University

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Abstract

This paper introduces a new dataset from 50 private investment funds from 17 countries around the world. We analyse the frequency of use of investment covenants imposed by institutional investors governing the activities of private investment fund managers in areas pertaining to investment decisions, investment powers, types of investments, fund operations and limitations on liability. While the data indicate a role for country legality in affecting the frequency of use of fund covenants, the data further indicate that the presence of legally trained managers has a more pronounced role in affecting the use of covenants. As private equity and venture capital investment increases across Europe and elsewhere, our results indicate that legal practice factors will matter more than the legal setting for the establishment of covenants governing new funds.

Suggested Citation

Johan, Sofia A. and Cumming, Douglas J., Is it the Law or the Lawyers? Investment Covenants Around the World. European Financial Management, Vol. 12, No. 4, pp. 535-574, September 2006. Available at SSRN: https://ssrn.com/abstract=923684 or http://dx.doi.org/10.1111/j.1468-036X.2006.00331.x

Sofia A. Johan

Florida Atlantic University - Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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/

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