Investor protection and business creation

We study the effects of investor protection on the availability of external finance, entrepreneurship, and creation of new firms in an equilibrium search model of private capital markets. In addition to search frictions, we examine contract frictions, specifically interim and ex post moral hazard problems stemming from entrepreneurs’ possibilities to expropriate financiers. In our model, the government chooses the level of investor protection that determines the transferability of match surplus between entrepreneurs and financiers. The results indicate that anything that increases (decreases) entrepreneurship also increases (decreases) the creation of start-ups. The effect of investor protection on the creation of start-ups thus hinges on the relative importance of various search and contract frictions. Only when investor protection has a sufficiently large impact on the ex post moral hazard problem relative to the interim moral hazard does strengthening investor protection enhance start-up creation. We also find that search frictions dilute the beneficial effect of investor protection and that contract frictions modify the standard Hosios condition for efficiency.investor protection; start-up financing; private equity market; entrepreneurship; corporate finance

Investor protection and business creation

We study the effects of investor protection on the availability of external finance, entrepreneurship, and creation of new firms in an equilibrium search model of private capital markets. In addition to search frictions, we examine contract frictions, specifically interim and ex post moral hazard problems stemming from entrepreneurs’ possibilities to expropriate financiers. In our model, the government chooses the level of investor protection that determines the transferability of match surplus between entrepreneurs and financiers. The results indicate that anything that increases (decreases) entrepreneurship also increases (decreases) the creation of start-ups. The effect of investor protection on the creation of start-ups thus hinges on the relative importance of various search and contract frictions. Only when investor protection has a sufficiently large impact on the ex post moral hazard problem relative to the interim moral hazard does strengthening investor protection enhance start-up creation. We also find that search frictions dilute the beneficial effect of investor protection and that contract frictions modify the standard Hosios condition for efficiency.investor protection, start-up financing, private equity market, entrepreneurship, corporate finance

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Contract Development In A Matching Market: The Case of Kidney Exchange

We analyze a new transplant innovation — Advanced Donation, referred to by some as a kidney “gift certificate,” “layaway plan,” or “voucher — as a case study offering insights on both market and contract development. Advanced Donation provides an unusual window into the evolution of the exchange of a single good — a kidney for transplantation — from gift, to simple barter, to exchange with a temporal separation of obligations that relies solely on trust and reputational constraints for enforcement, to a complex matching market in which the parties rely, at least in part, on formal contract to define and clarify their obligations to each other. The transplant community, however, has historically viewed formal contracts in the transplant setting with discomfort, and that traditional discomfort remains evident in current Advanced Donation practice. We conclude that the use of formal contracts in Advanced Donation is likely inadvertent, and the contracts, in a number of ways, are inadequate to tackle the complex, nonsimultaneous exchange of kidneys in which patients donate a kidney before their intended recipients have been matched with a potential donor

Cities, Matching and the Productivity Gains of Agglomeration

The striking geographical concentration of economic activities suggests that there are substantial benefits toagglomeration. However, the nature of those benefits remains unclear. In this paper we take advantage of a newdataset to quantify the role of one of the main contenders - the matching of workers and jobs. Using individuallevel data for two large US states we show that thicker urban labour markets are associated with moreassortative matching between workers and firms. Another critical condition is required for this to generatehigher productivity: complementarity of worker and firm quality in the production function. Usingestablishment level productivity regressions, we show that such complementarity is found in our data. Puttingtogether the production and matching relationships, we show that production complementarity and assortativematching is an important source of the urban productivity premium.Urban Productivity, Matching, Agglomeration

The regulatory and supervisory framework for fixed income markets in Europe

look at the development and regulation of fixed income securities markets in Europe. Fixed income securities markets in Europe have historically been characterized by a number of national markets that were interconnected by way of foreign exchange markets. They are presently undergoing major changes in size, infrastructure, and regulation. The authors describe the current state of the ongoing European regulatory and supervisory reform and the main drivers behind it. They conclude that European fixed income securities market regulation and infrastructure are not (yet) homogeneous. In some countries fixed income market regulation has been developed after intense political reflections on ways and means of promoting safe and efficient capital markets. In other countries, fixed incomemarket regulation is a product of learning-by-doing (such as ad hoc reflections based on negative market experiences and financial scandals). To illustrate the heterogeneity in the European fixed income markets, the authors include two examples: France as an example of a country from the euro area, and Denmark as an example of a country outside the euro area.Environmental Economics&Policies,Payment Systems&Infrastructure,Financial Intermediation,International Terrorism&Counterterrorism,Fiscal&Monetary Policy,Environmental Economics&Policies,Financial Intermediation,Insurance&Risk Mitigation,Insurance Law,National Governance

The Challenges Awaiting the European Crowdfunding Services Providers Regulation: Ready for Launch?

The Regulation on European Crowdfunding Services Providers for Business (ECSPR), adopted in October 2020, has started applying on 10 March 2022, in a period in history regarded as particularly complex for the entire world and for Europe because of the post-pandemic effects. Before that, the UK has decided to leave the European dream and the difficult negotiations have left the financial sector with uncertainty about the legal treatment of most financial services, including crowdfunding operations, across such new borders. At the same time, the EU is moving forward in its integration process, adopting several actions within the Capital Markets Union (CMU) action plan: one of the main goals of the CMU is indeed the adaptation of existing financial regulation to SMEs’ needs. Some legislative initiatives proposed, such as the Markets in Crypto-Assets Regulation (MiCAR), can be regarded as potentially favouring crowdfunding platforms’ competitors, since they all provide services and in particular financing to SMEs. Moreover, climate change effects are becoming more and more severe, also in Europe, forcing international, European and national regulators to implement reforms and sustainable considerations in financial regulation. Considering this background, it is important to assess whether the ECSPR will be able to show the resilience needed to face all these challenges, with its text presenting already adequate responses or tools to adapt. The present paper will analyse the most relevant parts of the ECSPR trying to assess whether such newly adopted regime has the potential, considering its architecture, scope and specific rules, to successfully deal with and overcome the highlighted challenges

Digital Finance in Europe: Law, Regulation, and Governance

This special volume collects contributions from leading scholars who scrutinize the challenges digital finance presents for the EU internal market and financial market regulation from multiple public policy perspectives. Author contributions aim to provide policy-relevant research and ideas shedding light on the complexities of the digital finance promise. They also offer solid proposals for reform of EU financial services law

Digital Finance in Europe: Law, Regulation, Governance : Volume 5 in the series European Company And Financial Law Review - Special Volume

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