This paper introduces a cross-country law and finance analysis of the misreporting behavior in th... more This paper introduces a cross-country law and finance analysis of the misreporting behavior in the hedge fund industry in terms of smoothing returns so that a fund consistently generates positive returns. We find strong evidence that international differences in hedge fund regulation are significantly associated with the propensity of fund managers to misreport monthly returns. We find a positive association between wrappers and misreporting, particularly for funds that do not have a lockup provision. Also, we find some evidence that misreporting is less common among funds in jurisdictions with minimum capitalization requirements and restrictions on the location of key service providers. We assess the robustness of our finds to a number of specifications, including, different specifications of misreporting bin widths, subsets of the data by fund type, as well as specifications controlling for collinearity and selection effects and other robustness checks. We show misreporting significantly affects capital allocation, and calculate the wealth transfer effects of misreporting and relate this wealth transfer to differences in hedge fund regulation.
Managerial and Decision Economics, 34, 451-470., 2013
Statistics reporting litigated cases of fraud on an exchange-by-exchange basis are not readily av... more Statistics reporting litigated cases of fraud on an exchange-by-exchange basis are not readily available to investors. This paper introduces data from three countries with multiple exchanges with different listing standards, – Canada, the United Kingdom and the United States – to show litigated cases of fraud significantly vary by country, and the different exchanges within the country. Comparisons are also made to Brazil, China and Germany to assess out-of-sample inferences. The data examined suggest there are significant differences in the nature of observed fraud across exchanges within the United States; by contrast, outside the United States there appears to be a comparative lack of enforcement. The data also suggest policy implications for the ways in which fraud ought to be reported to improve investor knowledge, market transparency and market quality.
This article examines how private equity returns in Asia are related to levels of legal protectio... more This article examines how private equity returns in Asia are related to levels of legal protection and corruption. We utilize a unique data set comprising over 750 returns to private equity transactions across 20 developing and developed countries in Asia. The data indicate that legal protections are an important determinant of private equity returns in Asia, but also that private equity managers are able to mitigate the potential for corruption. The quality of legal system (including legal protections) is positively related to returns. Inefficient legal protections negatively impact transaction structures and economic certainty when exiting investments. We also find that private equity managers, irrespective of the quality of legal system they are operating within, can mitigate the potential impact of corruption. Private equity returns are higher in countries with higher levels of corruption, controlling for legal systems. This finding is consistent with the view that private equity managers bring about organizational change to alleviate the costs of corruption. Our findings are robust to inclusion of controls for Hofstede cultural variables, economic conditions, and transaction specific characteristics, as well as consideration of econometric sample selection methods for unexited investments.
This paper studies the effect of the introduction of government-provided Internet technology to r... more This paper studies the effect of the introduction of government-provided Internet technology to rural communities (Internet communities) on regional entrepreneurship. Entrepreneurship increases among larger Internet communities, as the Internet spurs entrepreneurial activities by enabling agglomeration across areas that have a preexisting cluster of real entrepreneurial activities. There is, however, a decrease in entrepreneurship among smaller and more geographically remote Internet communities, as the Internet facilitates the consumption of items and services not produced within such smaller communities. Overall, the key finding is that virtual entrepreneurial clusters are not independent of real entrepreneurial clusters.
KNAW Narcis. Back to search results. Publication The Law and Economics of Private Equity Financin... more KNAW Narcis. Back to search results. Publication The Law and Economics of Private Equity Financing: Empirical Essays (2007). Pagina-navigatie: Main; Is part of (1). Enhanced Publications. Doctoral Thesis: The Law and Economics of Private Equity Financing: Empirical Essays (2011). Go to Website Navigation ...
This article considers an international sample of venture capital and private equity funds to ass... more This article considers an international sample of venture capital and private equity funds to assess the role of law, corruption, and culture in setting fund manager fees. With better legal conditions, fixed fees are lower, carried interest fees are higher, clawbacks are less likely, and share distributions are more likely. Countries with lower levels of corruption have lower fixed fees and higher performance fees, and are less likely to have clawbacks and cash-only distributions. Hofstede’s measure of power distance is negatively related to fixed fees and the use of cash-only distributions, but positively related to performance fees and clawbacks. Overall, the data strongly indicate that corruption, culture, and legal settings are much more significant in determining fees than fund manager characteristics and/or market conditions.
This paper examines cross-country evidence on the duration of venture capital (VC) investment. We... more This paper examines cross-country evidence on the duration of venture capital (VC) investment. We formulate a theory of VC investment duration based on the idea that venture capitalists exit when the expected marginal cost of maintaining the investment is greater than the expected marginal benefit, and thereby relate VC investment duration to entrepreneurial firm characteristics, investor characteristics, deal characteristics, and institutional and market conditions. VC investment duration data in Canada and the United States lend strong support to the theoretical predictions developed herein.
In 2005, the Government of Ontario, Canada, announced the phase out of the Labour Sponsored Ventu... more In 2005, the Government of Ontario, Canada, announced the phase out of the Labour Sponsored Venture Capital Corporation (LSVCC) tax credit, which will become effective in 2011. Some media attention has suggested this might lead to difficulty for Ontario entrepreneurs and emerging firms in raising capital. This study presents evidence from Ontario innovative healthcare firms that capital raising concerns are not related to the phasing out of the LSVCC tax credit, and this evidence is consistent with evidence of extreme underperformance of LSVCCs. However, amongst firms currently funded by LSVCCs, there is significant concern about the phase out of the tax credit, which is at least in part attributable to the terms within LSVCC shareholder agreements. Policymakers should account for firms currently funded by LSVCCs to efficiently facilitate the phase out of the tax credit.
This paper seeks to understand the role corporate governance government policy plays in the portf... more This paper seeks to understand the role corporate governance government policy plays in the portfolio choices of the Labour-Sponsored Venture Capital Corporations (LSVCCs) in Canada. We investigate whether or not the change in tax policy announced in Ontario (2005) has an impact on the investment behaviour of Ontario LSVCCs and whether the unique corporate governance structure of LSVCCs enable them to focus on their investment mandate. Our findings suggest that LSVCCs in Ontario are more likely to include public companies in their fund portfolios after the announcement of the change in tax policy. We find that after 2005, LSVCCs have increased their number of investments in public companies by 59.13% and in turn decreased their number of investments in private companies by 13.17%. On the other hand, we find no significant changes of in investment behaviour for LSVCCs in other provinces. In terms of the percentage of total investment in public companies, we find that the LSVCCs in Ontario are more likely to increase their total investment in public companies by 50% and to decrease their investment in the short term by 46.43%. LSVCCs in other provinces however are reducing their percentage of investment in public companies by 58.33% and increasing their total investment in private entrepreneurial firms by 38.33% in the same period. We highlight that the style drift of LSVCCs in Ontario may lead to such funds behaving more like other types of mutual funds and the deviation from their original mandate to provide venture capital may prove detrimental to entrepreneurial investee firms seeking such capital. Also, such deviation may not necessarily justify the higher management expense ratio.
Abstract This paper summarizes theory and empirical evidence that shows the Internet spurs real p... more Abstract This paper summarizes theory and empirical evidence that shows the Internet spurs real private investment expenditure among larger regional communities by enabling agglomeration among areas with a pre-existing cluster of entrepreneurial activities. For small and more remote rural communities, the Internet enables consumption of items not produced locally, and discourages entrepreneurship among communities that lack a preexisting entrepreneurial cluster.
This article considers an international sample of venture capital and private equity funds to ass... more This article considers an international sample of venture capital and private equity funds to assess the role of law, corruption, and culture in setting fund manager fees. With better legal conditions, fixed fees are lower, carried interest fees are higher, clawbacks are less likely, and share distributions are more likely. Countries with lower levels of corruption have lower fixed fees and higher performance fees, and are less likely to have clawbacks and cash-only distributions.
EXECUTIVE SUMMARY The recent growth of private equity markets–and their visibility in the public ... more EXECUTIVE SUMMARY The recent growth of private equity markets–and their visibility in the public eye–has been accompanied by rising public concerns about transparency, investor protection and governance. The pressure for regulation of private equity funds is increasing. The issues for policy makers are whether strengthened private equity regulation is warranted and, if so, in what ways.
This paper introduces a cross-country law and finance analysis of the misreporting behavior in th... more This paper introduces a cross-country law and finance analysis of the misreporting behavior in the hedge fund industry in terms of smoothing returns so that a fund consistently generates positive returns. We find strong evidence that international differences in hedge fund regulation are significantly associated with the propensity of fund managers to misreport monthly returns. We find a positive association between wrappers and misreporting, particularly for funds that do not have a lockup provision. Also, we find some evidence that misreporting is less common among funds in jurisdictions with minimum capitalization requirements and restrictions on the location of key service providers. We assess the robustness of our finds to a number of specifications, including, different specifications of misreporting bin widths, subsets of the data by fund type, as well as specifications controlling for collinearity and selection effects and other robustness checks. We show misreporting significantly affects capital allocation, and calculate the wealth transfer effects of misreporting and relate this wealth transfer to differences in hedge fund regulation.
Managerial and Decision Economics, 34, 451-470., 2013
Statistics reporting litigated cases of fraud on an exchange-by-exchange basis are not readily av... more Statistics reporting litigated cases of fraud on an exchange-by-exchange basis are not readily available to investors. This paper introduces data from three countries with multiple exchanges with different listing standards, – Canada, the United Kingdom and the United States – to show litigated cases of fraud significantly vary by country, and the different exchanges within the country. Comparisons are also made to Brazil, China and Germany to assess out-of-sample inferences. The data examined suggest there are significant differences in the nature of observed fraud across exchanges within the United States; by contrast, outside the United States there appears to be a comparative lack of enforcement. The data also suggest policy implications for the ways in which fraud ought to be reported to improve investor knowledge, market transparency and market quality.
This article examines how private equity returns in Asia are related to levels of legal protectio... more This article examines how private equity returns in Asia are related to levels of legal protection and corruption. We utilize a unique data set comprising over 750 returns to private equity transactions across 20 developing and developed countries in Asia. The data indicate that legal protections are an important determinant of private equity returns in Asia, but also that private equity managers are able to mitigate the potential for corruption. The quality of legal system (including legal protections) is positively related to returns. Inefficient legal protections negatively impact transaction structures and economic certainty when exiting investments. We also find that private equity managers, irrespective of the quality of legal system they are operating within, can mitigate the potential impact of corruption. Private equity returns are higher in countries with higher levels of corruption, controlling for legal systems. This finding is consistent with the view that private equity managers bring about organizational change to alleviate the costs of corruption. Our findings are robust to inclusion of controls for Hofstede cultural variables, economic conditions, and transaction specific characteristics, as well as consideration of econometric sample selection methods for unexited investments.
This paper studies the effect of the introduction of government-provided Internet technology to r... more This paper studies the effect of the introduction of government-provided Internet technology to rural communities (Internet communities) on regional entrepreneurship. Entrepreneurship increases among larger Internet communities, as the Internet spurs entrepreneurial activities by enabling agglomeration across areas that have a preexisting cluster of real entrepreneurial activities. There is, however, a decrease in entrepreneurship among smaller and more geographically remote Internet communities, as the Internet facilitates the consumption of items and services not produced within such smaller communities. Overall, the key finding is that virtual entrepreneurial clusters are not independent of real entrepreneurial clusters.
KNAW Narcis. Back to search results. Publication The Law and Economics of Private Equity Financin... more KNAW Narcis. Back to search results. Publication The Law and Economics of Private Equity Financing: Empirical Essays (2007). Pagina-navigatie: Main; Is part of (1). Enhanced Publications. Doctoral Thesis: The Law and Economics of Private Equity Financing: Empirical Essays (2011). Go to Website Navigation ...
This article considers an international sample of venture capital and private equity funds to ass... more This article considers an international sample of venture capital and private equity funds to assess the role of law, corruption, and culture in setting fund manager fees. With better legal conditions, fixed fees are lower, carried interest fees are higher, clawbacks are less likely, and share distributions are more likely. Countries with lower levels of corruption have lower fixed fees and higher performance fees, and are less likely to have clawbacks and cash-only distributions. Hofstede’s measure of power distance is negatively related to fixed fees and the use of cash-only distributions, but positively related to performance fees and clawbacks. Overall, the data strongly indicate that corruption, culture, and legal settings are much more significant in determining fees than fund manager characteristics and/or market conditions.
This paper examines cross-country evidence on the duration of venture capital (VC) investment. We... more This paper examines cross-country evidence on the duration of venture capital (VC) investment. We formulate a theory of VC investment duration based on the idea that venture capitalists exit when the expected marginal cost of maintaining the investment is greater than the expected marginal benefit, and thereby relate VC investment duration to entrepreneurial firm characteristics, investor characteristics, deal characteristics, and institutional and market conditions. VC investment duration data in Canada and the United States lend strong support to the theoretical predictions developed herein.
In 2005, the Government of Ontario, Canada, announced the phase out of the Labour Sponsored Ventu... more In 2005, the Government of Ontario, Canada, announced the phase out of the Labour Sponsored Venture Capital Corporation (LSVCC) tax credit, which will become effective in 2011. Some media attention has suggested this might lead to difficulty for Ontario entrepreneurs and emerging firms in raising capital. This study presents evidence from Ontario innovative healthcare firms that capital raising concerns are not related to the phasing out of the LSVCC tax credit, and this evidence is consistent with evidence of extreme underperformance of LSVCCs. However, amongst firms currently funded by LSVCCs, there is significant concern about the phase out of the tax credit, which is at least in part attributable to the terms within LSVCC shareholder agreements. Policymakers should account for firms currently funded by LSVCCs to efficiently facilitate the phase out of the tax credit.
This paper seeks to understand the role corporate governance government policy plays in the portf... more This paper seeks to understand the role corporate governance government policy plays in the portfolio choices of the Labour-Sponsored Venture Capital Corporations (LSVCCs) in Canada. We investigate whether or not the change in tax policy announced in Ontario (2005) has an impact on the investment behaviour of Ontario LSVCCs and whether the unique corporate governance structure of LSVCCs enable them to focus on their investment mandate. Our findings suggest that LSVCCs in Ontario are more likely to include public companies in their fund portfolios after the announcement of the change in tax policy. We find that after 2005, LSVCCs have increased their number of investments in public companies by 59.13% and in turn decreased their number of investments in private companies by 13.17%. On the other hand, we find no significant changes of in investment behaviour for LSVCCs in other provinces. In terms of the percentage of total investment in public companies, we find that the LSVCCs in Ontario are more likely to increase their total investment in public companies by 50% and to decrease their investment in the short term by 46.43%. LSVCCs in other provinces however are reducing their percentage of investment in public companies by 58.33% and increasing their total investment in private entrepreneurial firms by 38.33% in the same period. We highlight that the style drift of LSVCCs in Ontario may lead to such funds behaving more like other types of mutual funds and the deviation from their original mandate to provide venture capital may prove detrimental to entrepreneurial investee firms seeking such capital. Also, such deviation may not necessarily justify the higher management expense ratio.
Abstract This paper summarizes theory and empirical evidence that shows the Internet spurs real p... more Abstract This paper summarizes theory and empirical evidence that shows the Internet spurs real private investment expenditure among larger regional communities by enabling agglomeration among areas with a pre-existing cluster of entrepreneurial activities. For small and more remote rural communities, the Internet enables consumption of items not produced locally, and discourages entrepreneurship among communities that lack a preexisting entrepreneurial cluster.
This article considers an international sample of venture capital and private equity funds to ass... more This article considers an international sample of venture capital and private equity funds to assess the role of law, corruption, and culture in setting fund manager fees. With better legal conditions, fixed fees are lower, carried interest fees are higher, clawbacks are less likely, and share distributions are more likely. Countries with lower levels of corruption have lower fixed fees and higher performance fees, and are less likely to have clawbacks and cash-only distributions.
EXECUTIVE SUMMARY The recent growth of private equity markets–and their visibility in the public ... more EXECUTIVE SUMMARY The recent growth of private equity markets–and their visibility in the public eye–has been accompanied by rising public concerns about transparency, investor protection and governance. The pressure for regulation of private equity funds is increasing. The issues for policy makers are whether strengthened private equity regulation is warranted and, if so, in what ways.
Hedge funds and their managers have been vilified in recent times for their high-risk activities ... more Hedge funds and their managers have been vilified in recent times for their high-risk activities and relative lack of regulatory oversight. A recurrent concern shared by market participants and regulators around the world is that the increasing size of the hedge fund industry coupled with potential agency problems, activist investment practices, and herding behavior may exacerbate financial instability. However, while it is frequently suggested that hedge funds are unregulated, they are in fact regulated to some degree in every country around the world.
It is important to consider differences in legal and institutional settings across countries as they directly affect the structure, governance, and performance of hedge funds. In this book, the authors consider data from a multitude of countries to understand how and why hedge fund markets differ around the world. While hedge funds are hardly regulated in the US, other jurisdictions implement different and sometimes more onerous sets of regulatory requirements, which cann include, but are not limited to, minimum capitalization requirements, restrictions on the location of key service providers, and different permissible distribution channels via private placements, banks, other regulated or non-regulated financial intermediaries, wrappers, investment managers, and fund distribution companies.
This chapter discusses issues pertaining to crowdfunding and entrepreneurial internationalization... more This chapter discusses issues pertaining to crowdfunding and entrepreneurial internationalization. We extend prior literature by examining case studies and portals where entrepreneurial internationalization is facilitated by crowdfunding. We discuss opportunities, challenges, and future research opportunities.
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Papers by Sofia Johan
It is important to consider differences in legal and institutional settings across countries as they directly affect the structure, governance, and performance of hedge funds. In this book, the authors consider data from a multitude of countries to understand how and why hedge fund markets differ around the world. While hedge funds are hardly regulated in the US, other jurisdictions implement different and sometimes more onerous sets of regulatory requirements, which cann include, but are not limited to, minimum capitalization requirements, restrictions on the location of key service providers, and different permissible distribution channels via private placements, banks, other regulated or non-regulated financial intermediaries, wrappers, investment managers, and fund distribution companies.