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Chapter 1 introduces the book by presenting the main arguments that information resolution is a necessary component of SNG capital market development and access to external financing. It also argues that local policy and management agency vis-à-vis financial sector firms is critical to achieve SNG governance tasks in the face of decentralized governance and growing local service pressures. This chapter defines the key terminology of information problems, information institutions, and information resolution. It situates the focus on SNGs, and more narrowly on policy makers at the city level, that are embedded within the national contexts and financial markets. Finally, the chapter identifies the book’s contributions and details the organization of the book’s remaining chapters.

All books in this flagship series contain carefully selected substantial extracts from key cases, legislation, and academic debate, providing students with a stand-alone resource. This chapter, focuses on the free movement of capital and economic and monetary union (EMU). It first considers the movement of capital, one of the four freedoms enshrined in the original Rome Treaty. It then discusses EMU and analyzes the movement towards EMU, and the Treaty provisions that set the legal framework for EMU. The chapter considers arguments for and against EMU and the position of the European Central Bank, concluding with an overview of the stresses and strains of EMU in the light of the banking and financial crisis. The UK version contains a further section analysing issues concerning free movement of capital between the EU and the UK post-Brexit.

Roman Egypt sets an example of a monetized society in which credit was widely used in both monetary and in-kind transactions. During the first two and a half centuries of Roman rule, interactions between the three main legal systems in Egypt—Demotic, Greek, and Roman—gradually created a coherent institutional environment that structured credit and financial capital. In this environment, Greek law gained the upper hand as the most frequently used system of law for conducting economic interactions. The administrative, fiscal, and financial conditions set up by Roman governance, and above all the new and reduced maximum Roman legal interest rate, affected the development of credit-related mechanisms. Legal structures that enabled the creation of credit went through a slow and gradual change, in which available legal formats were adjusted to accommodate for somewhat different activities. Παραθήκη‎ formulae, originally used for making deposits, increasingly were being used in de facto loans, thereby casting new content in an existing formula. While this practice is commonly attested in transactions between private individuals, using παραθήκη‎ agreements seems not to have served as a common financial tool for Roman Egypt’s banking sector.

This chapter begins with a discussion on the capital markets. It compares primary and secondary markets, and long-term versus short-term marketplaces. This is followed by a case study on the auction rate securities (ARS) market. The second section discusses financial instruments, covering the types of financial instruments (equity-based financial instruments, debt-based financial instruments, derivatives, cryptocurrency and digital assets), and the distinction between debt and equity, and federal regulation. The final section deals with the role of the attorney. It discusses competent representation, the duty to advise the client, drafting financial instruments, regulatory compliance, and the issuance of opinion letters to clients regarding the implications of financial transactions.

In previous research on the economic adjustment of immigrants, hypotheses were generated based on the degree of the transferability of skill and the self-selection of immigrants for labor market ability. These hypotheses were found to be consistent with cross-sectional data for the United States and other countries. This chapter considers two alternative hypotheses that have been suggested: selective return migration of immigrants and the migration of those who anticipate high earnings for reasons other than ability. To compare the original and alternative models, a variety of new tests are made using cross-sectional and longitudinal data on earnings, occupation, and schooling from the censuses of population and the National Longitudinal Survey. The model of immigrant adjustment based on skill transferability and immigrant self-selection is shown to be consistent with these new tests, while the alternative hypotheses are not.

Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter examines how company law governs maintenance of a company’s share capital, with emphasis on the distinction between private and public companies. It also discusses various ways in which shareholders might legally receive funds (‘distributions’) from the company, including issuance of shares and payment of shares in kind (that is, goods, property, or services rather than in cash). The relevance of the nominal value of shares issued to shareholders, the issue of paying dividends to shareholders, and disguised return of capital to shareholders are considered as well. The chapter also examines two other means of returning funds to shareholders, reduction of share capital and redemption or purchase by a company of its own shares, before concluding with an assessment of the prohibition and the exceptions concerning the issue of financial assistance for the acquisition of shares in a public company.

Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter focuses on raising equity from the general public and its consequences for the operation of the company. It begins by outlining the basics of raising equity before turning to the consequences of operating in a public market, with emphasis on areas such as takeovers and insider dealing. It then considers the distinction between public and private companies in terms of capital raising, how such companies are regulated, and how public companies differ from listed companies. It also discusses various methods of raising money from the public, the role of the Financial Conduct Authority and the London Stock Exchange in ensuring the proper functioning of the listed market in the UK, and the regulation of listed companies as well as takeovers and other public offers. The chapter concludes by examining the Takeovers Directive (Directive 2004/25/EC of the European Parliament and of the Council of April 21, 2004 on Takeover Bids).

This chapter tracks the volume and distribution of international investment since the mid-nineteenth century. The first part presents quantitative evidence on the volume of capital flows since the early nineteenth century. The second section focuses on the golden age of global capital mobility and the determinants of capital flows and sovereign risk during the first era of financial globalization in the late nineteenth century The third section deals with the experience of the twentieth century. The last part discusses, from the perspective of economic history, the economic effects of capital flows, in particular the role of capital flows in economic development and the link between capital flows and financial crises.

Introduction SECTION I: COMPOSITIONAL SHIFT AND VOLATILITY OF CAPITAL FLOWS 1. Capital Flow Volatility and Contagion: A Focus on Asia 2. All Currencies Are Reserve Currencies SECTION II: CHALLENGES OF CAPITAL ACCOUNT MANAGEMENT 3. Capital Controls and Real Exchange Rates 4. Capital Controls: When Are Multilateral Considerations of the Essence? SECTION III: SELECT COUNTRY EXPERIENCES 5. Costs and Benefits of Capital Account Management in India 6. Negotiating the Trilemma and Reserve Management in an Era of Volatile Capital Flows 7. Sailing through the Global Financial Storm: Brazil's Recent Experience with Monetary and Macro Prudential Policies to Lean Against the Financial Cycle and Deal with Systematic Risks 8. Managing Capital Flows: Indonesia's Experience About the Editors and Contributors

This chapter reviews conceptual and empirical arguments for expecting the structure and nature of capital markets to impact on the financing of innovation. Market failure and innovation systems approaches to problems in the financing of innovation are reviewed, including approaches based on the varieties of capitalism, insider and outsider financial systems, and legal rights literatures. The complementarity between financial markets and other markets coordinating the allocation of resources is emphasized so that the impact of financing problems on innovation behaviour cannot readily be separated from wider system effects. The chapter concludes that there are generic issues involved in the financing of innovation related centrally to the long-term and uncertain nature of the pay-offs to innovation investment. The evidence suggests that different financial systems embedded in different financial market and legal structures address different elements of this problem in different ways. Relatively coordinated and bank-financed insider systems appear to offer greater commitments of long-term patient capital alongside investment in firm-specific human capital. There are big pay-offs in these systems in terms of incremental innovation in particular. The death of bank-based coordinated systems has been, as Mark Twain remarked on reading his obituary, greatly exaggerated.

Financial theory predicts that multinational corporations (MNCs) should have a lower cost of capital and a higher leverage level compared to domestic corporations (DCs) because of their enhanced access to global capital markets and risk diversification across countries. Empirical evidence, however, shows that the answer depends on the MNCs' home and host country factors, such as capital market development, institutional environment, and political stability. While the prediction holds for MNCs based in emerging markets, the opposite is observed for U.S. MNCs that expand into less stable economies. The increased globalization of the product and capital markets in the 1990s has also narrowed the gap in cost of capital between MNCs and DCs and this trend is likely to continue in the future.

The market risk premium (MRP) remains one of the most debated issues in corporate finance. The MRP is a critical input when measuring a company’s cost of equity and weighted cost of capital. Thus, a company’s estimate of the MRP can have major effects on its capital budgeting decisions. This is especially true when estimating the MRP in emerging markets, where expected returns are widely understood to be affected by variables other than those specified by the capital asset pricing model (CAPM). The purpose of this chapter is to investigate the degree of integration or lack thereof (segmentation) between capital markets and to develop a modified CAPM for financial decision-making in emerging markets.

This article first lays out the broad contours of state and local government capital spending and the precepts of the capital budgeting process. It then considers how capital spending levels and budgeting processes were affected by the Great Recession. State and local capital spending, which had grown rapidly before the downturn, was slowed considerably by the Great Recession's onset. Federal aid helped to cushion the blow, but capital spending began to decline as many jurisdictions exhausted their influx of federal funds. The Great Recession's effect on capital spending was found to be consistent with the impacts of past recessions, but its depressing effects will continue for several years. Thus, the Great Recession, when its aftershocks are played out, will likely result in unprecedented declines in state and local capital spending and an erosion of the public capital stock.

This article compares five different methodologies to value common and preferred shares with liquidation rights in a single-period setup of venture capital financing: the venture capital (VC) method; discounted cash-flow valuation with the Capital Asset Pricing Model (CAPM); discounted cash-flow valuation with market model in logs; a risk-preference-based approach; and the real options approach. The risk preference and the real option methodologies are the only ones that can properly account for the contingency in preferred stock. With small financings and small multiples the choice of methodology is not critical; however, with stronger preference rights, the VC method, the CAPM, and the market model in logs have difficulty coping with the contingencies, while the risk preference and the real option approach do well. The real option approach is fast and straightforward to implement as it requires only the venture value as input, which can be determined easily and accurately by any of the other four methodologies; the risk preference approach depends critically on unknown parameters and is computationally more intense.

This article examines the investment activity of venture capital in the United States, stratified by both geography and choice of industries, and evaluates the effects of certain key macroeconomic variables. The entire period covered extends from 1995 until Quarter 1 of 2009. In addition, the data set is split into four subperiods: the boom years of 1995Q1 to 2000Q1, the bust period of 2000Q2 to 2003Q4, the boom years of 2004Q1 to 2007Q3, and the bust period of 2007Q4 to 2009Q1. For the entire period as well as the subperiods, the statistical results confirm the importance of both region and industry in explaining investment in venture capital in the United States. These are valid for all subperiods; even when faced with a multitude of effects caused by the current recession, industry and region are still the dominating causes of venture capital investment activity.

This article analyzes empirically the relevance of direct measures for incentive problems in German venture capital (VC) financial contracting, and investigates whether differences in experience or ownership structure across firms remain relevant even for given realizations of direct measures of incentive problems. It also asks whether risk perception in itself depends on experience and/or ownership structure. The article is organized as follows. It presents the database and describes the relative frequencies of several contractual terms in Germany and the role of debt financing as a determinant of the utilization of different covenants. It introduces independent variables and then analyzes how experience and ownership structure of a VC firm influence its utilization of contractual terms and its perception of incentive problems.

This article reviews the financial contracts that are used in U.S. venture capital (VC) equity investments. It first discusses the conceptual reasons why VC contracts form a good testing ground for theoretical arguments pertaining to the design of financial contracts. It then describes the overall design of VC contracts and explains some of the most common and economically important contract terms. For these purposes, it presents summary statistics on cash flow contingencies from a broad recent data set of 1,804 unique VC contracts, and on control rights from a recent data set of 182 contracts. It proceeds by discussing the empirical results pertaining to the allocation of cash flow and control rights in VC contracts. The article concludes by discussing directions for future research on VC contracts.

In practice, venture capital (VC) is not about the people you know, but rather where you are. Some VCs even make their investment decisions based on the “twenty-minute rule,” which is that if a start-up company seeking venture capital is not within a twenty-minute drive of VCs' offices, it will not be funded. Generally speaking, both theoretical work and empirical evidence is consistent with these recent observations in the popular press. However, prior evidence on local bias in venture capital markets has not fully investigated how local bias depends on VCs' characteristics. Further, whether and how local bias differs for VC markets versus other forms of financial intermediation has not been fully considered. As well, there is no or little empirical evidence on the performance implications of local bias, which should be important for the diversification and specialization issue in VC fund management. This article aims to fill this gap. First, it discusses relevant theory and develops empirically testable predictions, and then describes the sample and data employed in this study. It develops measures of local bias in VC investments and examines whether there is local bias in VC investments. Next it analyzes the factors that contribute to local bias and links the geographic distance to VC investment performance. The last section summarizes the main findings.

This article studies whether and when venture capital stimulates regional economies beyond the companies receiving funding. The evidence suggests that venture capital indeed has an impact that goes well beyond the funded companies, increasing entrepreneurship, employment, and payrolls in a region as a whole. The evidence also indicates that the effect varies based on the research intensity, labor laws, and social capital in the region.

This article has two parts. The first part provides a brief literature review on existing theoretical and empirical research in the capital structure of family firms. It argues that there are sever ...

The aim of this article is threefold. First, it provides a definition of the philanthropic venture capital concept and presents different typologies of philanthropic venture capitalists in terms of the social enterprises they support and the outcomes to which they tend to give rise. Second, it describes the investment model adopted by philanthropic venture capitalists. And third, it presents the investment policy that characterizes the emerging philanthropic venture capital industry, with a special focus on the composition of its portfolio.

This article surveys the development of human capital (HC) in developing countries, focusing on the significance of the Asian experience. Here, the trajectories of human and industrial capital development in the Asia Pacific region are investigated as the most promising developing region in economic terms, posing the critical questions of whether this region will succeed in joining the advanced industrial countries in the knowledge economy, and whether other developing countries and regions of the world can follow the same path. A central theme is how the countries of Asia have coped and will need to continue to cope in future with the shift to a globalized, knowledge-based economy. In this process of development, the article identifies a central role for HC while stressing the complementary nature of other forms of capital including social capital, financial capital, manufacturing capital, and natural capital.