Legality and Venture Capital Exits
(2006) Journal of Corporate Finance — Vol. 12, n° 2, p. 214-245 (2006)
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- Authors
- Abstract
- This paper introduces an analysis of the impact of Legality on the exiting of venture capital investments. We consider a sample of 468 venture-backed companies from 12 Asia-Pacific countries, and these countries' venture capitalists' investments in US-based entrepreneurial firms. The data indicate IPOs are more likely in countries with a higher Legality index. This core result is robust to controls for country-specific stock market capitalization, MSCI market conditions, venture capitalist fund manager skill and fund characteristics, and entrepreneurial firm and transaction characteristics. Although Black and Gilson (1998) speculate on a central connection between active stock markets and active venture capital markets, our data in fact indicate the quality of a country's legal system is much more directly connected to facilitating VC-backed IPO exits than the size of a country's stock market. The data indicate Legality is a central mechanism which mitigates agency problems between outside shareholders and entrepreneurs, thereby fostering the mutual development of IPO markets and venture capital markets.
- Affiliations
Louvain School of Management Accounting & Finance
Citations
Schwienbacher, A., Fleming, G., & Cumming, D. (2006). Legality and Venture Capital Exits. Journal of Corporate Finance, 12(2), 214-245. https://hdl.handle.net/2078.5/138693 (Original work published 2006)