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Institutional Contexts and Empirical Methods <ul><li>Cumming & Johan (2009, Chapter 3) </li></ul>
Chapter Objectives <ul><li>Provide an overview of the legal and institutional context considered in the different countrie...
Institutional Context <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods  </li></ul><ul><li>Summary </li></...
Legal Conditions <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods  </li></ul><ul><li>Summary </li></ul><u...
Legal Conditions <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods  </li></ul><ul><li>Summary </li></ul>  ...
Legal Conditions <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods  </li></ul><ul><li>Summary </li></ul>  ...
Legal Conditions <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods  </li></ul><ul><li>Summary </li></ul>  ...
Legal Conditions <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods  </li></ul><ul><li>Summary </li></ul>  ...
Empirical Methods <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods  </li></ul><ul><li>Summary </li></ul><...
Empirical Methods <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods  </li></ul><ul><li>Summary </li></ul><...
Steps in Analyzing Data <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods  </li></ul><ul><li>Summary </li>...
Steps in Analyzing Data <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods  </li></ul><ul><li>Summary </li>...
Steps in Analyzing Data <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods  </li></ul><ul><li>Summary </li>...
Steps in Analyzing Data <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods  </li></ul><ul><li>Summary </li>...
Steps in Analyzing Data <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods  </li></ul><ul><li>Summary </li>...
Summary <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods  </li></ul><ul><li>Summary </li></ul><ul><li>Int...
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Chapter 3

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Transcript of "Chapter 3"

  1. 1. Institutional Contexts and Empirical Methods <ul><li>Cumming & Johan (2009, Chapter 3) </li></ul>
  2. 2. Chapter Objectives <ul><li>Provide an overview of the legal and institutional context considered in the different countries studied in the ensuing chapters of this book. </li></ul><ul><li>Review basic statistical and econometric methods for empirically studying venture capital and private equity markets. </li></ul>
  3. 3. Institutional Context <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods </li></ul><ul><li>Summary </li></ul><ul><li>Differences in venture capital and private equity markets might be attributable to a variety factors, such as </li></ul><ul><ul><li>Law, such as legal origin (English, French, German, Scandinavian), as well as the degree to which a country’s courts adhere to the rule of law and the efficiency of courts. </li></ul></ul><ul><ul><li>Culture, such as differences in the stigma attached to going bankrupt or the extent to which people trust one another. </li></ul></ul><ul><ul><li>Economic conditions, such as GNP per capita or the size of a country’s stock market. </li></ul></ul>
  4. 4. Legal Conditions <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods </li></ul><ul><li>Summary </li></ul><ul><li>Common measures of law quality include </li></ul><ul><ul><li>Common law (English Legal Origin) versus Civil Law (French, German, Scandinavian Legal Origin) </li></ul></ul><ul><ul><li>Efficiency of the judicial system (the efficiency and integrity of the legal environment) </li></ul></ul><ul><ul><li>The rule of law (the assessment of the law and order tradition in the country) </li></ul></ul><ul><ul><li>Corruption (the extent of government corruption in a country) </li></ul></ul><ul><ul><li>Risk of expropriation (the risk of outright confiscation or forced nationalization) </li></ul></ul><ul><ul><li>Risk of contract repudiation (the risk of contract modification). </li></ul></ul>
  5. 5. Legal Conditions <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods </li></ul><ul><li>Summary </li></ul>  Eng-lish Fre-nch Ger-man Scand-inavian Efficiency of the Judiciary System Rule of Law Corr-uption Risk of Exprop-riation Risk of Contract Repud-iation Legality Index* GNP Per Capita (2005 $US)** Chapter(s) in which data are from country in this book*** Argentina 0 1 0 0 6 5.35 6.02 5.91 4.91 12.34 $4,460 22 Australia 1 0 0 0 10 10 8.52 9.27 8.71 20.44 $33,120 9 Austria 0 0 1 0 9.5 10 8.57 9.69 9.6 20.76 $37,190 14,16,21,22 Belgium 0 1 0 0 9.5 10 8.82 9.63 9.48 20.82 $36,140 5,6,14,16,21,22 Brazil 0 1 0 0 5.75 6.32 6.32 7.62 6.3 14.09 $3,890 4,5,22 Canada 1 0 0 0 9.25 10 10 9.67 8.96 21.13 $32,590 5,6,9,10,11,12,13,17,18,19,22 Cayman Islands 1 0 0 0 $20,667 5,6 China 0 0 1 0 $1,740 22 Czech 0 0 1 0 $11,150 14,16,21,22
  6. 6. Legal Conditions <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods </li></ul><ul><li>Summary </li></ul>  Eng-lish Fre-nch Ger-man Scand-inavian Efficiency of the Judiciary System Rule of Law Corr-uption Risk of Exprop-riation Risk of Contract Repud-iation Legality Index* GNP Per Capita (2005 $US)** Chapter(s) in which data are from country in this book*** Denmark 0 0 0 1 10 10 10 9.67 9.31 21.55 $48,330 14,16,21,22 Finland 0 0 0 1 10 10 10 9.67 9.15 21.49 $37,530 5,6,22 France 0 1 0 0 8 8.98 9.05 9.65 9.19 19.67 $34,600 14,16,21,22 Germany 0 0 1 0 9 9.23 8.93 9.9 9.77 20.44 $34,870 5,6,14,16,21,22 Greece 0 1 0 0 7 6.18 7.27 7.12 6.62 14.91 $19,840 22 Guatemala $2,400 22 Hong Kong 1 0 0 0 10 8.22 8.52 8.29 8.82 19.11 $27,690 22 Iceland 0 0 0 1 $48,570 22 India 1 0 0 0 8 4.17 4.58 7.75 6.11 12.8 $730 22 Indonesia 0 1 0 0 2.5 3.98 2.15 7.16 6.09 9.16 $1,260 22 Ireland 1 0 0 0 8.75 7.8 8.52 9.67 8.96 18.92 $41,140 22 Israel 1 0 0 0 10 4.82 8.33 8.25 7.54 16.54 $18,580 9,22 Italy 0 1 0 0 6.75 8.33 6.13 9.35 9.17 17.23 $30,250 5,6,14,16,21,22 Japan 0 0 1 0 10 8.98 8.52 9.67 9.69 20.36 $38,950 22 Luxembourg 0 1 0 0 $68,810 5,6 Malaysia 1 0 0 0 9 6.78 7.38 7.95 7.43 16.67 $4,970 5,6,22
  7. 7. Legal Conditions <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods </li></ul><ul><li>Summary </li></ul>  Eng-lish Fre-nch Ger-man Scand-inavian Efficiency of the Judiciary System Rule of Law Corr-uption Risk of Exprop-riation Risk of Contract Repudiation Legality Index* GNP Per Capita (2005 $US)** Chapter(s) in which data are from country in this book*** Netherlands 0 1 0 0 10 10 10 9.98 9.35 21.67 $39,340 5,6,7,8,14,16,21,22 New Zealand 1 0 0 0 10 10 10 9.69 9.29 21.55 $25,920 5,6 Norway 0 0 0 1 10 10 10 9.88 9.71 21.78 $60,890 22 Philippines 0 1 0 0 4.75 2.73 2.92 5.22 4.8 8.51 $1,290 5,6,22 Poland $7,150 14,16,21,22 Portugal 0 1 0 0 5.5 8.68 7.38 8.9 8.57 17.2 $17,190 14,16,21,22 Puerto Rico $12,221 22 Russia $4,470 22 Singapore 1 0 0 0 10 8.57 8.22 9.3 8.86 19.53 $26,620 22 South Africa 1 0 0 0 6 4.42 8.92 6.88 7.27 14.51 $4,820 5,6 South Korea 0 0 1 0 6 0 5.3 8.31 8.59 14.23 $15,880 22
  8. 8. Legal Conditions <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods </li></ul><ul><li>Summary </li></ul>  Eng-lish Fre-nch Ger-man Scand-inavian Efficiency of the Judiciary System Rule of Law Corr-uption Risk of Expropriation Risk of Contract Repud-iation Legality Index* GNP Per Capita (2005 $US)** Chapter(s) in which data are from country in this book*** Spain 0 1 0 0 6.25 7.8 7.38 9.52 8.4 17.13 $25,250 22 Sweden 0 0 0 1 10 10 10 9.4 9.58 21.56 $40,910 22 Switzerland 0 0 1 0 10 10 10 9.98 9.98 21.91 $55,320 5,6,14,16,21,22 Taiwan 0 0 1 0 6.75 8.52 6.85 9.12 9.16 17.62 $16,764 22 United Kingdom 1 0 0 0 10 8.57 9.1 9.71 9.63 20.41 $37,750 5,6,22 United States 1 0 0 0 10 10 8.63 9.98 9 20.85 $43,560 5,6,7,8,9,10,11,12,13,22 * Legality = .381* (Efficiency of the Judiciary) + .5778* (Rule of Law) + .5031* (Corruption) + .3468* (Risk of Expropriation) + .3842* (Risk of Contract Repudiation) ; Berkowitz et al. (2003). Legal indices are not available for some countries. ** Source: World Bank Development Indicators 2007. *** In addition to The Netherlands and the US, Chapters 7 and 8 consider regions for Asia, Europe outside Netherlands, and Rest of World, without identifying particular countries
  9. 9. Empirical Methods <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods </li></ul><ul><li>Summary </li></ul><ul><li>Data analyses versus case study analyses </li></ul><ul><ul><li>Data useful to understand what happens in practice </li></ul></ul><ul><ul><li>Large samples from multitude of countries </li></ul></ul><ul><ul><ul><li>Focus on a single country could give rise to inappropriate inferences </li></ul></ul></ul><ul><ul><ul><li>E.g., just looking at U.S. data would give rise to misleading inferences about financial contracting in venture capital </li></ul></ul></ul><ul><ul><li>Focus on data analysis in this book as it is even more difficult to draw generalizable lessons from case analyses </li></ul></ul><ul><ul><li>Case studies can be used to complement analyses in this book to consider examples and decision making processes </li></ul></ul>
  10. 10. Empirical Methods <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods </li></ul><ul><li>Summary </li></ul><ul><li>Steps in analyzing data </li></ul><ul><ul><li>Representativeness </li></ul></ul><ul><ul><li>Descriptive statistics </li></ul></ul><ul><ul><li>Comparison tests and correlations </li></ul></ul><ul><ul><li>Regression analyses </li></ul></ul><ul><ul><li>Robustness checks </li></ul></ul>
  11. 11. Steps in Analyzing Data <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods </li></ul><ul><li>Summary </li></ul><ul><li>Representativeness </li></ul><ul><ul><li>Compare sample to population </li></ul></ul><ul><ul><li>Important for reliability </li></ul></ul><ul><ul><li>But sometimes difficult as the population is unknown, or characteristics about the population are unknown </li></ul></ul><ul><ul><ul><li>VC and PE funds are not obliged to report </li></ul></ul></ul>
  12. 12. Steps in Analyzing Data <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods </li></ul><ul><li>Summary </li></ul><ul><li>Descriptive statistics </li></ul><ul><ul><li>Means, medians, standard deviation, minimum, maximum </li></ul></ul><ul><ul><li>Useful to understand characteristics of variables in data </li></ul></ul><ul><ul><ul><li>E.g., important for understanding economic significance of factors that influence variables in the data </li></ul></ul></ul>
  13. 13. Steps in Analyzing Data <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods </li></ul><ul><li>Summary </li></ul><ul><li>Comparison tests and correlations </li></ul><ul><ul><li>Important for understanding patters in the data </li></ul></ul><ul><ul><li>Also, can be used to catch misspecification errors in regression analyses </li></ul></ul>
  14. 14. Steps in Analyzing Data <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods </li></ul><ul><li>Summary </li></ul><ul><li>Regression analyses </li></ul><ul><ul><li>Control for other things being equal </li></ul></ul><ul><ul><li>Methods depend on type of variable to explain </li></ul></ul><ul><ul><ul><li>Ordinary least squares </li></ul></ul></ul><ul><ul><ul><li>Tobit </li></ul></ul></ul><ul><ul><ul><li>Box-Cox </li></ul></ul></ul><ul><ul><ul><li>Logit/Probit </li></ul></ul></ul><ul><ul><ul><li>Ordered Logit </li></ul></ul></ul><ul><ul><ul><li>Multinomial Logit </li></ul></ul></ul>
  15. 15. Steps in Analyzing Data <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods </li></ul><ul><li>Summary </li></ul><ul><li>Robustness checks </li></ul><ul><ul><li>Specification mistakes </li></ul></ul><ul><ul><ul><li>Omitted variables </li></ul></ul></ul><ul><ul><ul><li>Endogeneity </li></ul></ul></ul><ul><ul><ul><li>Heteroskedasticity </li></ul></ul></ul><ul><ul><ul><li>Selection effects </li></ul></ul></ul><ul><ul><ul><li>Clustering </li></ul></ul></ul><ul><ul><ul><li>Outliers </li></ul></ul></ul>
  16. 16. Summary <ul><li>Institutional Context </li></ul><ul><li>Empirical Methods </li></ul><ul><li>Summary </li></ul><ul><li>International institutional context empirically considered in the ensuing chapters </li></ul><ul><ul><li>Reference to legal and institutional differences across countries </li></ul></ul><ul><ul><li>Background in terms of both the theory and the empirical methods is important for following each of the remaining chapters herein </li></ul></ul><ul><li>Brief review of the statistical and econometric techniques used in the ensuing chapters </li></ul><ul><ul><li>Examine data so that readers are familiar with venture capital and private equity contracting in the real world, and not just from a theoretical lens </li></ul></ul><ul><ul><li>Analyses of large datasets enable generalizable insights, unlike studying one-off cases </li></ul></ul>
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