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The Legal Road To Replicating Silicon Valley

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  • John Armour
  • Douglas Cumming

Abstract

Must policymakers seeking to replicate the success of Silicon Valley’s venture capital market first replicate other US institutions, such as deep and liquid stock markets? Or can legal reforms alone make a significant difference? In this paper, we compare the economic and legal determinants of venture capital investment, fundraising and exits. We introduce a cross-sectional and time series empirical analysis across 15 countries and 13 years of data spanning an entire business cycle. We show that the legal environment matters as much as the strength of stock markets; that government programmes more often hinder than help the development of private equity, and that temperate bankruptcy laws stimulate entrepreneurial demand for venture capital. Our results provide generalizable lessons for legal reform.

Suggested Citation

  • John Armour & Douglas Cumming, 2004. "The Legal Road To Replicating Silicon Valley," Working Papers wp281, Centre for Business Research, University of Cambridge.
    • Handle: RePEc:cbr:cbrwps:wp281
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    Cited by:

    1. Da Rin, Marco & Nicodano, Giovanna & Sembenelli, Alessandro, 2006. "Public policy and the creation of active venture capital markets," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1699-1723, September.
    2. Bhatia, Jai, 2009. "The impact of insolvency laws on venture capital," MPRA Paper 21346, University Library of Munich, Germany.
    3. Luukkonen, Terttu, 2006. "Venture Capital Industry in Finland - Country Report for the Venture Fun Project," Discussion Papers 1003, The Research Institute of the Finnish Economy.
    4. Da Rin, Marco & Nicodano, Giovanna & Sembenelli, Alessandro, 2006. "Public policy and the creation of active venture capital markets," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1699-1723, September.

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    More about this item

    Keywords

    venture capital; law and finance; bankruptcy;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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