What is the Role of Legal Systems in Financial Intermediation? Theory and Evidence 

Bottazzi, Laura ; Da Rin, Marco ; Hellmann, Thomas (2007) What is the Role of Legal Systems in Financial Intermediation? Theory and Evidence. Bologna: Dipartimento di Scienze economiche DSE, p. 43. DOI 10.6092/unibo/amsacta/4638. In: Quaderni - Working Paper DSE (613). ISSN 2282-6483.
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Abstract

We develop a theory and empirical test of how the legal system affects the relationship between a venture investor and an entrepreneur. 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, and they develop more value-adding skills. These predictions are stongly supported by the empirical analysis. We also find that the investor’s legal system is more important that of the company in determining these effects, and that legal system effects persist within civil law countries.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Bottazzi, Laura
Da Rin, Marco
Hellmann, Thomas
Subjects
ISSN
2282-6483
DOI
Deposit date
16 Feb 2016 15:06
Last modified
16 Feb 2016 15:06
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