angel investors around the world we document that the choice between disintermediated individual angel investments and intermediated private equity and venture capital investments depends on legal economic and cultural differences we find evidence of this using pitchbook s comprehensive data on more than 5000 angel and 80 000 private equity and venture capital investments in 96 countries from 1977 to 2012 the data further indicate that investee firms funded by angels are less likely to successfully exit through either an ipo or an acquisition these findings are robust to propensity score matching methods as well as to clustering standard errors and excluding u s observations among other approaches

legal protection corruption and private equity returns in asia this article examines how private equity returns in asia are related to levels of legal protection and corruption we utilize a unique data set comprising over 750 returns to private equity transactions across 20 developing and developed countries in asia the data indicate that legal protections are an important determinant of private equity returns in asia but also that private equity managers are able to mitigate the potential for corruption the quality of legal system including legal protections is positively related to returns inefficient legal protections negatively impact transaction structures and economic certainty when exiting investments we also find that private equity managers irrespective of the quality of legal system they are operating within can mitigate the potential impact of corruption private equity returns are higher in countries with higher levels of corruption controlling for legal systems this finding is consistent with the view that private equity managers bring about organizational change to alleviate the costs of corruption our findings are robust to inclusion of controls for hofstede cultural variables economic conditions and transaction specific characteristics as well as consideration of econometric sample selection methods for unexited investments

what do entrepreneurs pay for venture capital affiliation this study empirically evaluates the certification and value added roles of reputable venture capitalists vcs using a novel sample of entrepreneurial start ups with multiple financing offers i analyze financing offers made by competing vcs at the first professional round of start up funding holding characteristics of the start up fixed offers made by vcs with a high reputation are three times more likely to be accepted and high reputation vcs acquire start up equity at a 10 14 discount the evidence suggests that vcs extra financial value may be more distinctive than their functionally equivalent financial capital these extra financial services can have financial consequences a central issue for early stage high tech entrepreneurs is obtaining external resources when the assets of their start up are intangible and knowledge based particularly for entrepreneurs without an established reputation convincing external resource providers such as venture capitalists vcs to provide financial capital may be challenging the literature contains two main lines of research for overcoming this problem one research stream has concentrated on designing institutional structures to permit financing early stage ventures this contractual and monitoring based approach is aimed at solving potential agency problems between investors and entrepreneurs e g admati and pfleiderer 1994 lerner 1995 hellmann 1998 and kaplan and str omberg 2001 2002 2003 a second research stream has suggested that when the quality of a start up cannot be directly observed external actors rely on the quality of the start up s affiliates as a signal of the start up s own quality

regulatory environments and the location decision evidence from the early foreign market entries of new technology based firms new technology based firms ntbfs embarking on a strategy of rapid internationalisation choose foreign market entries that minimise transaction costs and the related risks of failure means to reduce the young firms vulnerability to the appropriation of intellectual capital are particularly important influences on early foreign market choices we explore the effect of the institutional dimension specifically the national regulatory environment on the location choices and the speed of internationalisation by british and german ntbfs we provide evidence that entrepreneurial young firms choose to enter country markets offering better regulatory protection for their intellectual property this decision is moderated by a home regulatory regime bias in contrast we observe that the speed of internationalisation is influenced less by the foreign regulatory regime and more by industry and firm characteristics we also observe that managerial experience influences the location choices of ntbfs facing regulatory hazards

cross border venture capital investments the impact of foreignness on returns against the background of the growing internationalization of venture capital vc investing this is the first global comparison of the returns generated by individual domestic and cross border deals we examine investments worldwide during 1971 2009 and find that cross border investments significantly underperform compared with equivalent domestic investments returns are negatively affected by geographic distances cultural disparities and institutional differences between the home and host countries returns on cross border and domestic deals also decline after the late 1990s international portfolio diversification and the saturation of domestic markets may explain why vc investors make cross border investments despite poor expected returns

the fragility of sunspots and bubbles abstract expectational stability e stability is used to examine the multiplicity of solutions in a range of rational expectations models of interest including muth s inventory model and an overlapping generations model in these model it is found that sunspot and other rational bubble solutions are either e unstable or weakly but not strongly e stable

assessing the contribution to innovation of private equity investors a study on european buyouts abstract the paper provides an empirical analysis of the patenting activity of a sample of western european manufacturing firms undergoing a buyout between 1998 and 2004 a panel data design is used to test whether the characteristics of the deal and of private equity pe firms can affect acquired companies subsequent innovation effort as measured by the number of patents granted by the epo results support the view that the innovation activity of portfolio firms is affected by different types of investors pursuing different objectives and differing in their risk propensity expected returns and investment policies the characteristics of lead investors size stage specialization geographical location and of the deal amount invested presence of multiple investors are also investigated and are found to differently affect the post buyout innovation activity of sample firms

determinants of required return in venture capital investments a five country study abstract using two complementary theoretical perspectives we develop hypotheses regarding the determinants of the return required by venture capitalists and test them on a sample of over 200 venture capital companies vccs located in five countries consistent with resource based theory we find that early stage specialists require a significantly higher return than other vccs when investing in later stage ventures consistent with financial theory we find that acquisition buyout specialists require a significantly lower return than other vccs when investing in expansion companies furthermore in comparison to specialists highly stage diversified vccs require a significantly higher return for early stage investments independent vccs require a higher rate of return than captive or public vccs in general higher required returns are associated with vccs who provide more intensity of involvement have shorter expected holding period of the investment and being located in the us or uk in comparison to those in france belgium and the netherlands

conservatism and international ipo underpricing we study the impact of country level accounting conservatism on international ipo underpricing examining 13 285 ipos from 36 countries we find that ipos are underpriced less in countries in which existing public firms practice more accounting conservatism the link between conservatism and underpricing is robust to alternative measures of conservatism country mean regressions sample country exclusions and endogenous treatment models consistent with the hypothesis that conservatism reduces underpricing by mitigating the impact of information asymmetries we find that higher country level conservatism is associated with lower country level pin values and that the negative relation between conservatism and underpricing is strongest for ipos involving small firms in which information asymmetries are likely to be high lastly we find evidence that legal origin a factor linked to the practice of conservatism influences the relations between underpricing and conservatism

the role of corruption culture and law in investment fund manager fees this article considers an international sample of venture capital and private equity funds to assess the role of law corruption and culture in setting fund manager fees with better legal conditions fixed fees are lower carried interest fees are higher clawbacks are less likely and share distributions are more likely countries with lower levels of corruption have lower fixed fees and higher performance fees and are less likely to have clawbacks and cash only distributions hofstede s measure of power distance is negatively related to fixed fees and the use of cash only distributions but positively related to performance fees and clawbacks overall the data strongly indicate that corruption culture and legal settings are much more significant in determining fees than fund manager characteristics and or market conditions

the effect of capital market characteristics on the value of start up firms we develop an equilibrium model of contracting bargaining and search in which the relative scarcity of venture capital affects the bargaining power of entrepreneurs and venture capitalists this in turn affects the pricing contracting and value creation in start ups the relative scarcity of venture capital is endogenous and depends on the profitability of venture capital investments entry costs and transparency of the venture capital market supply and demand conditions also affect the incentives of venture capitalists to screen projects ex ante we characterize both the short and long run dynamics of the venture capital industry which provides us with a stylized picture of the internet boom and bust periods our model is consistent with existing evidence and provides a number of new empirical predictions

determinants of sovereign wealth fund investment in private equity vs public equity this paper examines the investments of 19 sovereign wealth funds swfs in 424 firms both public and private around the world from 1991 through 2010 the data indicate that swfs similar to other institutional investors are less likely to invest in private equity than in public equity internationally however the economic significance of this impact is surprisingly low unlike other institutional investors swfs are more likely to invest in private equity compared with public equity in target nations where investor protection is low and where the bilateral political relations between the swf and the target nation are weak surprisingly cultural differences play a marginally positive role in the choice to invest in private equity investment outside an swf s own sovereign nation comprehensively we find that swfs act distinctively from other traditional institutional investors when investing in private equity

contracts and exits in venture capital finance using a sample of european venture capital vc investments i study the relation between vc contracts and exits the data indicate that ex ante stronger vc control rights increase the likelihood that an entrepreneurial firm will exit by an acquisition rather than through a write off or an ipo my findings are robust to controls for a variety of factors including endogeneity and cases in which the vc preplans the exit at the time of contract choice my findings are consistent with control based theories of financial contracting such as aghion and bolton 1992

the gini concentration index a review of the inference literature more than a century ago corrado gini proposed his well known concentration index for measuring the degree of inequality in the distribution of income and wealth his index is still extremely relevant and widely used in several fields of research and application in this paper we focus on the inferential properties of the gini index and discuss the main directions of analysis proposed in the literature the aim of the paper is to provide a comprehensive review of the main developments on the inferential aspects of the gini concentration ratio we feel that this work can provide a valuable contribution to those scholars who are approaching the large amount of literature on the inferential properties of the gini index

financial freedom and bank efficiency evidence from the european union this paper investigates the dynamics between the financial freedom counterparts of the economic freedom index drawn from the heritage foundation database and bank efficiency levels we rely on a large sample of commercial banks operating in the 27 european union member states over the 2000s after estimating bank specific efficiency scores using data envelopment analysis dea we develop a truncated regression model combined with bootstrapped confidence intervals to test our main hypotheses results suggest that the higher the degree of an economy s financial freedom the higher the benefits for banks in terms of cost advantages and overall efficiency our results also show that the effects of financial freedom on bank efficiency tend to be more pronounced in countries with freer political systems in which governments formulate and implement sound policies and higher quality governance

venture capital growing pains should the market diet abstract this paper examines recent trends in the venture capital market and current research that explores the impact of these trends high returns in the venture capital industry caused by the surging market for venture backed initial public offerings and recent reductions in the capital gains tax rate have led to dramatic increases in venture capital commitments this rise in fundraising has had dramatic effects on various segments of the venture capital market which may indicate overheating the terms and conditions of venture capital limited partnerships have changed reflecting the growth in demand for venture capital services the share of profits retained by venture capitalists has increased while the restrictiveness of the partnership agreements has eased venture firms are raising substantially larger funds with increasing pressure to find investments thereby moving to later stage investments the price of investments has also responded to the growing desire to increase investment finally institutional investors are increasingly looking internationally for new investment opportunities in venture capital to avoid potential market excesses

economic development legality and the transplant effect abstract we analyze the determinants of effective legal institutions legality using data from 49 countries we show that the way the law was initially transplanted and received is a more important determinant than the supply of law from a particular legal family countries that have developed legal orders internally adapted the transplanted law and or had a population that was already familiar with basic principles of the transplanted law have more effective legality than countries that received foreign law without any similar predispositions the transplanting process has a strong indirect effect on economic development via its impact on legality while the impact of particular legal families is weaker and not robust to alternative legality measures

financing and advising optimal financial contracts with venture capitalists this paper analyses the joint provision of effort by an entrepreneur and by an advisor to improve the productivity of an investment project without moral hazard it is optimal that both exert effort with moral hazard if the entrepreneur s effort is more efficient less costly than the advisor s effort the latter is not hired if she does not provide funds outside financing arises endogenously this explains why investors like venture capitalists are value enhancing the level of outside financing determines whether common stocks or convertible bonds should be issued in response to incentives

what lures cross border venture capital inflows the change in the business model of venture capitalists from investing locally towards investing across borders started to intensify in the late 1990s according to a dataset of european and north american countries we find that countries with higher expected growth and higher lagged stock market returns receive larger net cross border venture capital inflows thus portfolio companies located in high growth and high return countries receive more venture capital from foreign venture capitalists than these countries venture capitalists invest in foreign portfolio companies also countries with lower stock market capitalizations as well as those with poor tax and legal environments for venture capital intermediation exhibit larger net cross border inflows these findings offer important insights for policy makers since cross border venture capital inflows partly compensate for potential limits in the domestic venture capital supply

when bureaucrats meet entrepreneurs the design of effective public venture capital programmes recently public efforts to finance small high technology firms have proliferated we review the motivations for these efforts and make some preliminary observations about their design we explore the underlying challenges that the financing of young growth firms poses the ways that specialised financial intermediaries address them and the rationales for public efforts to finance these companies the final section makes a set of observations about the ways in which the structure of these efforts can most effectively complement private sector activity a frequent fault in programme design is the presumption that technological criteria can be divorced from business considerations when evaluating firms the federal government has played an active role in financing new firms particularly in high technology industries since the soviet union s launch of the sputnik satellite in recent years european and asian nations and many us states have adopted similar initiatives while these programmes precise structures have differed the efforts have been predicated on two shared assumptions i that the private sector provides insufficient capital to new firms and ii that the government either can identify investments which will ultimately yield high social and or private returns or can encourage financial intermediaries to do so in contrast to other government interventions designed to boost economic growth such as privatisation programmes these claims have received little scrutiny by economists the neglect of these questions is unfortunate while the sums of money involved are modest relative to public expenditures on defence procurement or retiree benefits these programmes are very substantial when compared to contemporaneous private investments in new firms government programmes in this arena have been divided between those efforts that directly fund entrepreneurial firms and those that encourage or subsidise the development of outside investors in this paper i will focus on public venture capital initiatives programmes that make equity or equity like investments in young firms or encourage other intermediaries to make such investments in some such programmes such as the advanced technology program and the small business innovation research programmes discussed below the funds are provided as a contract or outright grant while these efforts have proliferated a consensus as to how to structure these programmes remains elusive while the design of regulatory agencies has been extensively studied from a theoretical and empirical perspective little work has

skills or networks success and fundraising determinants in a low performing venture capital market abstract this paper provides a novel interpretation of the factors leading to low performance in venture capital vc markets by using human and social capital perspectives we investigate the relationship between the professional experience and education of vc firm managers and i the success of their portfolio firms on one hand and ii their fundraising activity on the other our study focuses on the french vc market the french business environment is characterized by tight links between businesses and the state and by powerful elite networks while the vc industry has been dominated by government funding and incentives since the global financial crisis we evidence a positive relationship between task specific human capital variables and the exit success of vc backed firms however unlike the research from the us market we find no support for the claim that success determinants impact fundraising activity instead we substantiate the importance of higher social networks for raising larger funds in markets with strong networks

do countries matter for voluntary disclosure evidence from cross listed firms in the us this paper explores the likelihood and consequences of voluntary disclosure proxied by management earnings forecasts for a sample of 1005 cross listed firms in the us from 40 countries over the period 1996 2005 our study is grounded in a three tiered conceptual framework that relies on insights from and implications of institutional theory agency theory and bonding theory to explain the costs and benefits associated with voluntary disclosure consistent with institutional theory and agency theory our results indicate that disclosure likelihood increases with the strength of cross listed firms home country legal institutions and is also influenced by us listing type product market internationalization and ownership structure further our results show that voluntarily committing to us disclosure practice is associated with lower information asymmetry which supports reputational bonding theory overall our study provides a costs and benefits framework to understand voluntary disclosure practices in an international context our work also presents evidence that home country institutions still matter when foreign firms migrate into the us financial market which highlights the importance of country level institution development

start ups venture capitalists and the capital gains tax a model of start up finance with double moral hazard is proposed entrepreneurs have ideas and technical competence but lack own resources as well as commercial experience venture capitalists vcs provide start up finance and managerial support both types of agents thus jointly contribute to the firm s success but neither type s effort is verifiable we find that the market equilibrium is biased towards inefficiently low entrepreneurial effort and venture capital support in this situation the capital gains tax is particularly harmful the introduction of a small tax impairs effort and advice and leads to a first order welfare loss several other policies towards venture capital and start up entrepreneurship are also investigated

legal framework quality and success of different types of venture capital investments abstract drawing on an analysis of 8 270 companies from 41 countries i explore the relationship between success of venture capital investments and legal frameworks in the investment countries legal framework quality is related to success but the effect varies with the deal type first the significant and positive relationship between legal framework quality and success is more pronounced for domestic deals than for international deals further investigations suggest that international venture capitalists often exit their portfolio companies abroad particularly when these companies are located in countries with inefficient legal frameworks in addition the results lend support to the view that international venture capitalists have a greater experience and reputation second legal framework quality seems to be more important for success in syndicated than in standalone deals this finding supports the view that a sound legal framework may improve the benefit cost balance of syndication while an inefficient legal framework may tend to increase costs in syndicated deals

does legal enforcement affect financial transactions the contractual channel in private equity analyzing 210 developing country private equity investments we find that transactions vary with nations legal enforcement whether measured directly or through legal origin investments in high enforcement and common law nations often use convertible preferred stock with covenants in low enforcement and civil law nations private equity groups tend to use common stock and debt and rely on equity and board control transactions in high enforcement countries have higher valuations and returns while relying on ownership rather than contractual provisions may help to alleviate legal enforcement problems these results suggest that private solutions are only a partial remedy

private equity returns and disclosure around the world to obtain more funds from the institutional investors private equity pe fund managers may report inflated valuations of private investee companies that are not yet sold however such overvaluations may result in a reputational cost when those investments are realized using evidence from 39 countries we show that there are significant systematic biases in managers reporting of fund performance we find that these biases depend on the accounting and legal environment in a country and on proxies for the degree of information asymmetry between institutional investors and pe fund managers

venture capitalists decision policies across three countries an institutional theory perspective this paper examines the influence of economic institutions upon venture capitalists vcs decision policies we conducted policy capturing experiments on 119 vcs across three countries representing distinct economic institutions us mature market economy south korea emerging economy and china transitional economy results show that vcs in rules based market economies us rely upon market information to a greater extent than vcs in emerging economies korea and chinese vcs transitional economy weight human capital factors more heavily than either us or korean vcs findings suggest that although professional institutions may dictate which information is included in vc decision policies the extent to which that information is emphasized is determined partly by the economic institution in which the decision maker operates journal of international business studies 2007 38 691 708 doi 10 1057 palgrave jibs 8400291

the heckman correction for sample selection and its critique this paper gives a short overview of monte carlo studies on the usefulness of heckman s 1976 1979 two step estimator for estimating selection models such models occur frequently in empirical work especially in microeconometrics when estimating wage equations or consumer expenditures it is shown that exploratory work to check for collinearity problems is strongly recommended before deciding on which estimator to apply in the absence of collinearity problems the full information maximum likelihood estimator is preferable to the limited information two step method of heckman although the latter also gives reasonable results if however collinearity problems prevail subsample ols or the two part model is the most robust amongst the simple to calculate estimators

venture capitalist certification in initial public offerings this paper provides support for the certification role of venture capitalists in initial public offerings consistent with the certification hypothesis a comparison of venture capital backed ipos with a control sample of nonventure capital backed ipos from 1983 through 1987 matched as closely as possible by industry and offering size indicates that venture capital backing results in significantly lower initial returns and gross spreads in effect the presence of venture capitalists in the issuing firms serves to lower the total costs of going public and to maximize the net proceeds to the offering firm in addition we document that venture capitalists retain a significant portion of their holdings in the firm after the ipo the ability of third party specialists to certify the value of securities issued by relatively unknown firms in capital markets that are characterized by asymmetric information between corporate insiders and public investors has attracted much academic interest in recent years several authors including james 1990 blackwell marr and spivey 1990 and barry muscarella peavy and vetsuypens 1991 have developed and tested models based at least in part on the formal certification hypothesis presented in booth and smith 1986 a related body of work represented by deangelo 1981 beatty and ritter 1986 titman and trueman 1986 johnson and miller 1988 carter 1990 simon 1990 and carter and manaster 1990 has examined how investment bankers and auditors help resolve the asymmetric information inherent in the initial public offering ipo process in this paper we examine whether the presence of venture capitalists as investors in a firm going public can certify that the offering price of the issue reflects all available and relevant inside information we hypothesize that venture capitalists can perform this function that it will be an economically

using privileged information to manipulate markets insiders gurus and credibility access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements the fact that privileged information is noisy interferes with the public s attempts to learn whether such announcements are honest it allows opportunistic individuals to manipulate prices repeatedly without ever being fully found out this leads us to extend sobel s 1985 model of strategic communication to the case of noisy private signals our results show that when truthfulness is not easily verifiable restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices