International patterns of ownership structure choices of start-ups: does the quality of law matter? |
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Authors: | Qianqian Du Ilan Vertinsky |
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Institution: | (1) Shanghai Advanced Institute of Finance (SAIF), Shanghai Jiao Tong University, Zhong Yuan Building, 1954 Huashan Road, 200030 Shanghai, China;(2) Sauder School of Business, University of British Columbia, 2053 Main Mall, Vancouver, BC, V6T 1Z2, Canada |
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Abstract: | The concentration of ownership of enterprises varies significantly among countries. In this paper we investigate the role
that differences in legal systems among nations play in molding founders’ preferences with respect to the ownership structure
of their start-ups. We develop an economic framework which articulates the impact that the quality of protection offered to
shareholders and debt holders has on the supply of debt and equity financing and the incentives of the founders to recruit
partners or opt for sole ownership. The theoretical analysis predicts that a positive relationship is likely to exist between
the quality of the legal system and the ownership concentration of start-ups. This prediction is in contrast to the findings
on relationships in large publicly traded firms. Using data obtained from the Adult Population Survey of the Global Entrepreneurship
Monitor project from 2001 to 2004 about ownership preference patterns, we confirm the prediction. |
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Keywords: | |
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