Syndication Networks and Legal Enforcement

62 Pages Posted: 30 Jan 2019

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Ali Mohammadi

Copenhagen Business School - Department of Strategy and Innovation; Danish Finance Institute; Royal Institute of Technology (KTH) - Center of Excellence for Science and Innovation Studies

Simona Zambelli

University of Florence

Date Written: January 1, 2019

Abstract

This study investigates whether international differences in legal enforcement are associated with venture capital (VC) syndication networks, and whether culture moderates this relationship. We conjecture that public enforcement, with strong investigative powers against any syndicate member and strong group sanctions, increases the costs of VC syndication and discourages the formation of dense syndication networks. By contrast, private enforcement, with strong disclosure and liability standards, encourages the formation of denser VC syndication networks, through clarification of liability rules, standardizing securities contracts, and cost sharing amongst those belonging to the investment syndicate. Based on data from 31 countries involving 201,552 VC-investee firm relationships, the evidence is consistent with the negative impact of public enforcement on VC network density, and partially supports the positive impact of private enforcement depending on cultural conditions.

Keywords: Networks, Venture Capital, Syndication, Legal Enforcement, Culture

JEL Classification: G10, G20, G24, G28, K22, K42

Suggested Citation

Cumming, Douglas J. and Mohammadi, Ali and Zambelli, Simona, Syndication Networks and Legal Enforcement (January 1, 2019). Available at SSRN: https://ssrn.com/abstract=3318361 or http://dx.doi.org/10.2139/ssrn.3318361

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/douglascumming/bio?authuser=0

Ali Mohammadi

Copenhagen Business School - Department of Strategy and Innovation ( email )

Kilen
Frederiksberg, 2000
Denmark

Danish Finance Institute ( email )

Royal Institute of Technology (KTH) - Center of Excellence for Science and Innovation Studies ( email )

Drottning Kristinas väg 30
Stockholm, SE-100 44
Sweden

Simona Zambelli (Contact Author)

University of Florence ( email )

Department of Economics and Management
Via delle Pandette 9
FIRENZE, FI 50127
Italy

HOME PAGE: http://https://www.unifi.it/p-doc2-0-0-A-3f2c352f362e31.html

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