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Legal Conditions and Venture Capital Governance

We analyze governance with a new dataset on investments of venture capitalists in 3848 portfolio firms in 39 countries from North and South America, Europe, and Asia spanning 1971–2003. We provide evidence that cross-country differences in Legality, including legal origin and accounting standards, have a significant impact on the governance structure of investments in the VC industry: better laws facilitate faster deal screening and deal origination, a higher probability of syndication and a lower probability of potentially harmful coinvestment, and facilitate investor board representation of the investor and the use of securities that do not require periodic cash flows prior to exit. We also ...

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