International Patterns of Ownership Structure Choices of Start-ups: Does the Quality of Law Matter?

51 Pages Posted: 14 Nov 2005 Last revised: 21 Sep 2009

See all articles by Qianqian Du

Qianqian Du

Hong Kong Polytechnic University

Ilan Vertinsky

University of British Columbia (UBC) - Sauder School of Business

Date Written: August 31, 2009

Abstract

The concentration of ownership of enterprises varies significantly among countries. In this paper we investigate the role that differences in legal systems play in molding founders' ownership preferences with respect to the ownership structure of their startups. We develop an economic framework which articulates the impact that the quality of protection offered to minority 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 positive relationships are likely to exist between the quality of the legal system and ownership concentration of startups. This prediction is in contrast to the findings of 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.

Keywords: Business and the environment, Institutional context, Expropriation, Ownership concentration, Quality of legal system

JEL Classification: M13, K10

Suggested Citation

Du, Qianqian and Vertinsky, Ilan, International Patterns of Ownership Structure Choices of Start-ups: Does the Quality of Law Matter? (August 31, 2009). Sauder School of Business Working Paper, Available at SSRN: https://ssrn.com/abstract=844004 or http://dx.doi.org/10.2139/ssrn.844004

Qianqian Du (Contact Author)

Hong Kong Polytechnic University ( email )

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The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

Ilan Vertinsky

University of British Columbia (UBC) - Sauder School of Business ( email )

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Vancouver, BC V6T 1Z2
Canada
604-822-9406 (Phone)
604-822-8477 (Fax)

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