Post by Sapphire Capital on Jul 26, 2008 20:58:43 GMT 4
What is the Role of Legal Systems in Financial Intermediation?
Theory and Evidence
Marco Da Rin
University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER); Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)
Laura Bottazzi
University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER); University of Bologna - Department of Economics; Centre for Economic Policy Research (CEPR)
Thomas F. Hellmann
University of British Columbia - Sauder School of Business
March 2008
TILEC Discussion Paper No. 2008-014
CentER Discussion Paper Series No. 2008-30
Abstract:
We develop a theory and empirical test of how the legal system affects the relationship between venture capitalists and entrepreneurs. The theory uses a double moral hazard framework to show how optimal contracts and investor actions depend on the quality of the legal system. The empirical evidence is based on a sample of European venture capital deals. The main results are that with better legal protection, investors give more non-contractible support and demand more downside protection. These predictions are supported by the empirical analysis. Using a new empirical approach of comparing two sets of fixed-effect regressions, we also find that the investor's legal system is more important than that of the company in determining investor behavior.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1111401_code663947.pdf?abstractid=1111401&mirid=3
Theory and Evidence
Marco Da Rin
University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER); Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)
Laura Bottazzi
University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER); University of Bologna - Department of Economics; Centre for Economic Policy Research (CEPR)
Thomas F. Hellmann
University of British Columbia - Sauder School of Business
March 2008
TILEC Discussion Paper No. 2008-014
CentER Discussion Paper Series No. 2008-30
Abstract:
We develop a theory and empirical test of how the legal system affects the relationship between venture capitalists and entrepreneurs. The theory uses a double moral hazard framework to show how optimal contracts and investor actions depend on the quality of the legal system. The empirical evidence is based on a sample of European venture capital deals. The main results are that with better legal protection, investors give more non-contractible support and demand more downside protection. These predictions are supported by the empirical analysis. Using a new empirical approach of comparing two sets of fixed-effect regressions, we also find that the investor's legal system is more important than that of the company in determining investor behavior.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1111401_code663947.pdf?abstractid=1111401&mirid=3