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Is it the Law or the Lawyers? Investment Covenants around the World*
Author(s) -
Cumming Douglas,
Johan Sofia
Publication year - 2006
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2006.00331.x
Subject(s) - umbrella fund , private equity , business , venture capital , investment (military) , fund of funds , private equity fund , finance , private equity firm , covenant , investment fund , liability , sovereign wealth fund , open ended investment company , principle of legality , closed end fund , limited liability , economics , market economy , law , return on investment , political science , profit (economics) , incentive , politics , market liquidity , microeconomics
This paper introduces a new dataset from 50 private investment funds from 17 countries around the world. We analyse the frequency of use of investment covenants imposed by institutional investors governing the activities of private investment fund managers in areas pertaining to investment decisions, investment powers, types of investments, fund operations and limitations on liability. While the data indicate a role for country legality in affecting the frequency of use of fund covenants, the data further indicate that the presence of legally trained managers has a more pronounced role in affecting the use of covenants. As private equity and venture capital investment increases across Europe and elsewhere, our results indicate that legal practice factors will matter more than the legal setting for the establishment of covenants governing new funds.