Entrepreneurship, Finance, Governance and Ethics

Volume 3 of the series Advances in Business Ethics Research pp 87-110


Law and Corruption in Venture Capital and Private Equity

  • Douglas CummingAffiliated withSchulich School of Business, York University Email author 
  • , Grant FlemingAffiliated withContinuity Capital Partners
  • , Sofia JohanAffiliated withSchulich School of Business, York University
  • , Dorra NajarAffiliated withUniversisté Paris Dauphine and IPAG Business School

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This chapter summarizes recent research on the role of law, culture and corruption on venture capital (VC) fund structure, governance and performance. Evidence from studies that involve a multitude of countries is primarily considered. The evidence across most studies is broadly consistent with the view that legal protection enables superior compensation arrangements in limited partnerships where the interests of general partners and limited partners is aligned. More corrupt countries, by contrast, have less efficient compensation structures. The evidence further indicates that better legal systems facilitate contract performance. Finally, the evidence show countries with higher levels of corruption have higher levels of returns, suggesting that fund managers are able to alleviate the effects of corruption in investee companies. In our concluding comments we discuss venture capital around the world and its future development in relation to law, corruption and culture.