Best Paper - Volume 16

The JFI editors are pleased to announce that the JFI Stuart Greenbaum Prize for the most significant paper published in the 2007 Journal of Financial Intermediation has gone to Steven N. Kaplan, Frederic Martel and Per Strömberg for the paper "How Do Legal Differences and Experience Affect Financial Contracts?," published in Volume 16, Issue 3. The prize carries with it a $2,500 check for the winners.

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How Do Legal Differences and Experience Affect Financial Contracts?
Steven N. Kaplan
University of Chicago Graduate School of Business, USA

Frederic Martel
University of Lausanne, Switzerland

Per Strömberg
Swedish Institute of Financial Research, Saltmätargatan 19A, SE-113 59 Stockholm, Sweden

Abstract

We analyze venture capital (VC) investments in twenty-three non-US countries and compare them to US VC investments. We describe how the contracts allocate cash flow, board, liquidation, and other control rights. In univariate analyses, contracts differ across legal regimes. However, more experienced VCs implement US style contracts regardless of legal regime. In most specifications, legal regime becomes insignificant controlling for VC experience. VC firms that do not use US style contracts fail significantly more often, even controlling for VC experience. The results are consistent with US style contracts being efficient across a wide range of legal regimes. JEL Classification Numbers: G24; G32. ©2007 Elsevier Inc.