How Do Legal Differences and Learning Affect Financial Contracts?

40 Pages Posted: 12 Jan 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

Frederic Martel

UBS Global Asset Management; University of Lausanne IMD

Per Strömberg

Swedish House of Finance; ECGI; CEPR

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 Neil and Martel, Frederic and Stromberg, Per, How Do Legal Differences and Learning Affect Financial Contracts? (December 2003). Available at SSRN: https://ssrn.com/abstract=487044

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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Frederic Martel

UBS Global Asset Management ( email )

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University of Lausanne IMD

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Per Stromberg (Contact Author)

Swedish House of Finance ( email )

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ECGI ( email )

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