Institutional environment and financing costs: Evidence from venture capital backed transactions

Abstract

This study examines the financing cost enterprises confront when seeking backing from venture capitalists (VC) in different institutional settings related to proxy voting rights. Using a sociological perspective, we have developed new indexes for proxy voting rights from 28 countries. Examining 2598 VC-backed financing deals over the period of 1997 to 2016, we find that proxy voting rights significantly reduce enterprises' financing costs. Our findings are robust to a number of checks after addressing endogeneity concerns.