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Author: Yelin Zhang
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Languages : en
Pages : 0
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This dissertation contains three chapters, covering analyses on crowdfunding, mutual fund, and entrepreneurial ecosystem. The chapters are connected at a theoretical level by the study of information asymmetries among financial intermediaries and the value added (or lack thereof) that intermediaries provide in different contexts. The first essay on crowdfunding focuses on platform due diligence. Crowdfunding platform due diligence comprises background checks, site visits, credit checks, cross-checks, account monitoring, and third party proof on funding projects. I conjecture that due diligence is associated with the busyness of platform employees and sophistication of platform service indicated by fee structure. Due diligence screens lower quality projects and mitigates information asymmetries between project issuers and funders; it is associated with higher percentage of successful campaigns and larger amount of capital raised on platforms. I test these propositions with platform-level data and find strong supportive evidence. The second essay on mutual fund studies agency problems associated with fund fee structure. Distinguishing between switches, pre-authorized contributions, systematic withdrawal plans, reinvestments, and distributions, I find that different types of flow exhibit distinct characteristics to retail fund flow with respect to fund fees and past performance. I argue that the positive correlation between retail fund inflow and switch-out reflects information asymmetry between incoming investors and current unitholders. I further show that this information asymmetry, attributed to biased purchase advice, is negatively associated with fund performance. A large sample of proprietary Canadian data from 2003 2014 support the findings. The third essay on entrepreneurial ecosystem studies the joint impact of venture capitalist and technology parks on small business development. I argue two alternative routes that lead entrepreneurial start-ups to acquisition outcomes instead of liquidation. On one hand, acquisitions can come about through the control route with external financers such as venture capitalists (VCs). On the other hand, acquisitions can come about through more advice and support provided to the start-up, such as that provided by a technology park. Empirical analyses on a sample of 251 Crunchbase companies in the U.S. strongly support these propositions.
Author: Yelin Zhang
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ISBN:
Category :
Languages : en
Pages : 0
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Book Description
This dissertation contains three chapters, covering analyses on crowdfunding, mutual fund, and entrepreneurial ecosystem. The chapters are connected at a theoretical level by the study of information asymmetries among financial intermediaries and the value added (or lack thereof) that intermediaries provide in different contexts. The first essay on crowdfunding focuses on platform due diligence. Crowdfunding platform due diligence comprises background checks, site visits, credit checks, cross-checks, account monitoring, and third party proof on funding projects. I conjecture that due diligence is associated with the busyness of platform employees and sophistication of platform service indicated by fee structure. Due diligence screens lower quality projects and mitigates information asymmetries between project issuers and funders; it is associated with higher percentage of successful campaigns and larger amount of capital raised on platforms. I test these propositions with platform-level data and find strong supportive evidence. The second essay on mutual fund studies agency problems associated with fund fee structure. Distinguishing between switches, pre-authorized contributions, systematic withdrawal plans, reinvestments, and distributions, I find that different types of flow exhibit distinct characteristics to retail fund flow with respect to fund fees and past performance. I argue that the positive correlation between retail fund inflow and switch-out reflects information asymmetry between incoming investors and current unitholders. I further show that this information asymmetry, attributed to biased purchase advice, is negatively associated with fund performance. A large sample of proprietary Canadian data from 2003 2014 support the findings. The third essay on entrepreneurial ecosystem studies the joint impact of venture capitalist and technology parks on small business development. I argue two alternative routes that lead entrepreneurial start-ups to acquisition outcomes instead of liquidation. On one hand, acquisitions can come about through the control route with external financers such as venture capitalists (VCs). On the other hand, acquisitions can come about through more advice and support provided to the start-up, such as that provided by a technology park. Empirical analyses on a sample of 251 Crunchbase companies in the U.S. strongly support these propositions.
Author: Paul P. Momtaz
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Languages : en
Pages : 0
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This dissertation consists of three chapters.In Chapter 1 of the dissertation, I contribute to the inconclusive literature on labor empow- erment and corporate innovation. The paper exploits a law that creates Labor-Controlled Firms (LCFs) for identification in a regression discontinuity design using administrative data that link employers, inventors, and patents in Germany. The law mandates that firms with more than 500 or 2,000 employees have a minority (33%) or parity (50%) share of labor-elected directors on their boards, respectively. Local average treatment effects on the number of patents and the forward citation-weighted number of patents per LCF are significantly positive at both the minority and parity cutoffs, although forward citations per patent are significantly negative at the parity cutoff. The results suggest that labor control causes innovative productivity to increase at the expense of a relative shift from exploratory toward exploitative search. Auxiliary tests support this conclu- sion. Labor control insures employed inventors against adverse labor market shocks, increasing firm-related specialization through longer employment spells while reducing the intensive margin of innovative labor supply. Moreover, inventors' marginal income per patent is insensitive to the quality of the patent when the employer is labor-controlled, suggesting a lack of financial incen- tives for exploratory search in LCFs. In Chapter 2, we estimates that shares in Private Investments in Public Equity (PIPEs) offered a discount of 3% for each year during which these shares could not be resold. The discount can be substantially larger in offerings in which marketability is a greater concern. Our estimates make use of the duration of the resale restriction and information about the effects of a regulatory change. In 2008, the SEC amended Rule 144 to shorten the default statutory holding period. Our estimates are smaller than previous estimates and robust to various controls and endogeneity concerns. In Chapter 3, we offer evidence from acquisition decisions that suggests that antitakeover pro- visions (ATPs) may increase firm value when internal corporate governance is sufficiently strong. We document that, in Germany, firms with stronger ATPs, and particularly supermajority provi- sions, are better acquirers. Managers of high-ATP firms create value in acquisitions by making governance-improving deals. They are more likely to engage in acquisitions that reduce their own entrenchment level and less likely to invest in declining industries. The empirical evidence is consistent with a short-termist interpretation. Takeover threats can induce myopic investment decisions, which ATPs can mitigate. They also lead managers to engage more often in value- creating long-term and innovative investing, and increase their sensitivity to investment opportu- nities. Our findings contribute to a growing literature challenging conventional wisdom that the agency-increasing effect of ATPs empirically dominates the myopia-eliminating effect, suggesting that a more contextual view of the value implications of ATPs is necessary.
Author: Minije Zhang
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Category :
Languages : en
Pages : 0
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This dissertation consists of three empirical studies in entrepreneurial finance around the world. The first essay empirically compares the impact of entrepreneurship on GDP, unemployment, exports, and patents by examining three international datasets. The findings of this essay point to institutional and cultural impediments to the effectiveness of entrepreneurship around the world. The impact of entrepreneurship is significantly mitigated by excessively strong creditor rights that limit entrepreneurial risk taking. Furthermore, the data indicate that cultural attitudes associated with low risk taking limit the effectiveness of entrepreneurship. The results of this essay also show how different definitions of new business entry matter for empirical analysis of entrepreneurship across countries. The second essay documents angel investors investment behaviors and performances around the world as compared with private equity (PE) and venture capital (VC) funds. Angel investors finance small high growth entrepreneurial firms in exchange for equity. Unlike PE/VC funds, which invest capital from institutional investors, angels invest their own money. We compare the impact from legal and cultural conditions on disintermediated angel finance versus intermediated PE/VC finance. The data indicate that, relative to PE/VC funds, angel investors are more sensitive to stock market conditions, legal environments, and Hofstedes cultural conditions. The data further indicate that investee firms funded by angels are less likely to successfully exit in either an IPO or acquisition, on average, whether those angels are involved in the first round or later stages. iii The third essay studies the different effects of legal and institutional factors on private equity divestment strategies of IPOs and acquisitions in the emerging markets. The data indicate that PE fund managers have a higher probability of successful exits in countries with better business and legal environments. We also find that PE investors are better able to mitigate the potential costs associated with inefficient and corrupt business environments to increase the probability of exits by IPOs in countries with higher levels of corruption. Moreover, our findings suggest that market shocks arguably concentrated in the developed markets result in a negative ripple effect as the probability of successful exits decreases for PE investors in emerging markets.
Author: Roy Kenneth Roth
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ISBN:
Category :
Languages : en
Pages :
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In this dissertation, I study how the structure and conventions of the venture capital market affect the behavior of both investors and entrepreneurs. The venture capital market is characterized by high-risk investments with the potential for extreme rewards. The current structure and conventions of the market have developed at least in part to mitigate the level of risk faced by the investors. Characteristics of the market include convertible preferred securities, staged investment and board representation for investors among other features. In the first chapter of this dissertation, I study the effects of stage financing on effort provision and firm value, weighing the advantages of upfront financing against the incentive to misuse the capital for personal reasons. In the second chapter, I study how the use of convertible preferred securities and board representation affect the level of risk chosen by venture capital-backed firms. Both chapters primarily deal with the market structure as given, thus, the focus of this dissertation is on understanding the effects of the current market structure on real decision-making, rather than providing justification for observed conventions. In so doing, I uncover insights not previously available and meaningfully contribute to the existing literature. In the first chapter, I explore the optimal staging path for venture capital-backed companies. Staging investment allows a portion of the risk inherent to financing new ventures to be mitigated, as some portion of the needed funds can be withheld until after initial progress is realized. As a result, companies that show poor intermediate signals can be abandoned, saving investors from likely losses. Additionally, despite investors' representation on the board of directors, some misbehavior by the entrepreneur may not be preventable ex-post. Hence, there is value in limiting the amount of capital that the entrepreneur has access to while the firm is young and opaque, as this limits the amount that can be misused. These factors create a motive for stage financing. However, providing a larger amount of capital upfront can also provide flexibility and operational efficiencies that increase the potential value of the project. Weighing these effects against each other leads to an internal optimum level of staging, where some capital is provided upfront but a portion is withheld until further information is revealed and the firm matures. The entrepreneur's preferred level of capital raised initially exceeds the level that maximizes the value of the firm. I further explore how the solution changes when the entrepreneur disagrees with investors over the likely value of the project. Specifically, I study how the solution is affected when the entrepreneur is more optimistic about the distribution of project outcomes than are investors. This creates two separate effects that oppose each other. On one hand, optimistic entrepreneurs are less likely to misbehave and waste capital, lowering the cost of providing capital upfront and increasing the optimal amount raised initially. On the other hand, optimists believe that the price they can get for their equity will be higher in the future, increasing the perceived cost of upfront financing and decreasing its optimal level. I illustrate that in low information settings the former effect dominates while in high information settings the latter dominates. These findings provide insight into the staging decision not previously available. In Chapter 2 I focus on the incentives for risk-taking facing both entrepreneurs and investors. In venture capital financing, investors take convertible preferred stock which is senior to the common stock held by the entrepreneurs. Traditional economic logic would then imply that the entrepreneur has a stronger incentive for risk-taking than does the investor, by virtue of the security design. However, I show that this is not always the case. I explore how the incentives of the decision-making investors, the general partners of venture capital funds, are affected by the fact that they manage funds of other peoples money. Hence, their compensation profile is not linearly related to fund value. In particular, general partners are compensated with a mixture of fixed and performance sensitive income. I show that the performance sensitive component, carried interest, introduces a kink into the payoffs of the general partners which induces a preference for risky strategies in certain situations. My model predicts two key scenarios where, despite holding a senior security, general partners are more risk-seeking than entrepreneurs. First, general partners are risk-seeking late in the life cycle of their funds if prior performance has been poor. This is similar to the "gambling for resurrection'' effect in firms near default. Furthermore, in many cases, the possibility of future poor performance is sufficient to induce the GP to prefer high-risk strategies even early in the life of the fund, before intermediate progress has been realized. These findings are empirically relevant and shed light on which parties are the driving forces behind the level of risk selected by startup firms.
Author: Sharat Raghavan
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ISBN:
Category :
Languages : en
Pages : 105
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This dissertation analyzes contracts and organizational form decisions in the empirical setting of venture capital investments. The first chapter asks how entrepreneurs and venture capital investors are affected by a specific design feature of investment contracts. Participating preferred rights, which are venture capital contract terms that give investors returns greater than their intrinsic ownership, are used extensively despite possible deleterious effects on founder incentives. Using a novel data set of venture capital investment contracts from 2004-2009, I ask three fundamental questions about these rights: when are they used, who uses them, and what are their consequences? The findings indicate that (i) lower inflows of venture capital funding increase the use of participating preferred rights; (ii) less experienced investors and certain industry sectors utilize participating preferred rights more often; and (iii) firms with participating preferred rights are less likely to raise a subsequent financing at a higher valuation and less likely to exit through an IPO or acquisition, suggesting that the incentive implications of these rights may affect firm performance. These results are robust to specifications that attempt to control for the endogeneity of the contract right. The findings provide important insights for entrepreneurs and investors who are weighing the consequences of certain contractual forms. The second chapter broadens the analysis to other contractual rights to asks how investors and entrepreneurs allocate ownership and venture capital investment rights in competitive markets. Using the same data set of venture capital financings from 2004-2009, I find that changes in market competition, or venture capital supply, affect contractual terms in significant ways. Competition not only affects firm valuations, but how actual firm ownership is divided between entrepreneurs and investors. Additionally, certain contractual rights shift in response to venture capital scarcity. Specifically, the results suggest that (i) entrepreneurs own more of the firm in periods of high venture capital inflows, (ii) entrepreneurs give up cash flow rights in periods of low venture capital inflows, and (iii) the incidence of control rights are not significantly affected by venture capital inflows. Similarly, the results are robust to specifications that attempt to control for the endogeneity of venture capital inflows. The third chapter (co-authored with Eric J. Allen) focuses on a potential inefficiency of organizational design, specifically when a startup chooses to organize as a C-corporation rather than as a limited liability company (LLC). We examine the previously documented anomaly of loss-generating startup firms organizing as C-Corporations, as opposed to the theoretically more tax efficient alternative - the LLC. While prior research examines the potential reasons for this divergence between theory and practice, this is the first study that actually attempts to quantify the foregone tax benefits incurred by the current system. We examine a sample of venture backed firms that reached the Initial Public Offering stage between 1996 and 2008. We find that the vast majority of these firms have accumulated tax losses at issuance, on average $33 million, and that the associated potential tax benefit is significant. We also examine a subsample of firms that were, at one time, organized as pass-through entities prior to going public. We find that, while the majority switched to the C-Corporate form upon the entrance of a venture capital investor, a small number were allowed to retain their pass-through status until issuance. Their existence provides further evidence that the alternative form's lack of adoption must be attributable to some aspect other than technical limitations that would prevent venture capital investment.
Author: Hyunsung Daniel Kang
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ISBN:
Category : Accounting
Languages : en
Pages :
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My dissertation is focused on developing a better understanding of the technology and innovation strategies of corporations and their impacts on firm performance. I am particularly interested in corporate venture capital (CVC), which serves as a strategy for accessing external technology for corporate investors and as an alternative source of financing and complementary assets for start-ups. I have investigated the conditions under which corporate investors and start-ups achieve the strategic goals by establishing CVC ties, and on estimating the technological and financial gains created by the CVC ties. Specifically, I have concentrated on when and where CVC ties are established in order to maximize economic value. The former relates to a timing issue, whereas the latter is a space issue of CVC investments. In the first essay, I examine corporate investors' decisions to establish CVC ties and their subsequent strategic actions. Consistent with the real options perspective on CVC investments, I find that CVC investments can help corporate investors effectively search for and select future acquisition or licensing partners by reducing asymmetric information and uncertainty that may characterize markets for technology. Specifically, CVC investments facilitate the external acquisition of technology by substituting for a corporate investor's absorptive capacity, as reflected by its upstream research capabilities. CVC investments instead complement the portfolio of internally generated new products, since they allow highly productive corporate investors to shift their focus onto exploratory initiatives with the objective of selecting future technology and partners. Finally, CVC investments facilitate exploratory investments in distant technological areas that are subsequently integrated through licensing or acquisitions. These findings contribute to emerging research on the organization and financing patterns of external R & D activities. In the second essay, I investigate the nature of the relationship between technological spillovers and capital gains created by CVC investments for corporate investors. Using a simple equilibrium model and data from the global bio-pharmaceutical industry between 1986 and 2007, I find that these technological spillovers and capital gains are complements. This complementarity is enhanced when CVC investments are made in post-IPO and technologically diversified start-ups. Beyond providing a broad benchmark for heterogeneous returns on CVC investments, this study has important implications for corporate investors and start-ups. In particular, to the extent that capital gain is greatly determined by changes in the market values of start-ups, it implies that CVC investments can create value for start-ups as well as corporate investors. These mutual benefits can be greatly determined by when (e.g., post-IPO start-ups) and where (e.g., technologically diversified start-ups) CVC investments are made. In the third essay, I analyze the contextual factors that impact the probability of start-ups' obtaining financing through independent venture capitalists and corporate investors. The systematic empirical evidence based on a three-stage game theoretic model suggests that start-ups that possess better evaluated technology tend to be financed through independent venture capitalists, rather than corporate investors. In contrast, start-ups tend to be financed through corporate investors, rather than independent venture capitalists, when their intellectual properties are effectively protected and their research pipelines contain multiple products. These findings provide a theoretical basis to explain why several types of investors co-exist in the entrepreneurial financing market. Moreover, the existence of such determinants indicates that, although investors traditionally have been viewed as the powerful partner that dominates the investment decision, start-ups are also active decision makers in investment ties.
Author: Moein Karami
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Languages : en
Pages : 0
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This dissertation aims to shed light on dynamics of new forms of entrepreneurial finance, in general, and crowdfunding, in particular, from three different following aspects. First, we conduct an exhaustive search of all media reports on Kickstarter campaign fraud allegations from 2010 through 2015, and determine campaign features that are associated with a higher probability of observing fraud, using multiple matched samples of non-fraudulent campaigns. We also document the short-term negative consequence of possible breaches of trust in the market, using a sample of more than 270,000 crowdfunding campaigns posted from 2010 through 2018 on Kickstarter. Our results show that crowdfunding projects launched around a significant misconduct detection on Kickstarter tend to have a lower probability of success, raise less funds, and attract fewer backers. Second, using a sample of 230,255 crowdfunding campaigns (2013-2018) on Kickstarter and drawing upon previous empirical evidence, the statistically significant effect of five variables on campaign success is documented. To date, numerous studies have focused on determining factors affecting crowdfunding success, however, it is extremely difficult to compare results across papers as each use incompatible specifications, and different control variables. The identified variables aim to measure the intensity of competition, creator's crowdfunding experience, project quality & creator confidence, portal recognition, and project size. Furthermore, the effect of campaign creator's citizenship, as well as project location, on funding success is investigated. Third, and drawing upon previous findings on the effect of biological factors on investment behavior and entrepreneurship, a significant positive relationship between fWHR (facial Width-to-Height Ratio) of the hedge fund managers in the sample (1994-2016) and fund's risk is documented. The association between facial masculinity of male entrepreneurs and their fund-raising outcome is also investigated using a sample of ABC channel's "Shark Tank" show (2009-2014). The results are in line with previous findings on the positive correlation between fWHR and testosterone; a hormone which its role in describing behavioral patterns such as competitiveness and risk-taking is well-established. The study sheds light on the factors that are not incorporated in economic models, but may significantly affect financial risk-taking and performance, as well as entrepreneurial outcomes.
Author: Ramana Nanda
Publisher:
ISBN:
Category :
Languages : en
Pages : 152
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There is growing belief that countries with better financing environments are associated with higher economic growth because they facilitate entrepreneurship and hence the Schumpeterian process of 'creative destruction'. This dissertation explores this hypothesis in more detail by understanding how the financing environment for new ventures impacts outcomes such as individuals' decision to become entrepreneurs, their sources of financing and the growth and survival of their firms. Rather than performing cross-country analyses however, the approach used in this dissertation is to perform within-country studies that shed more light on the mechanisms through which the financing environment impacts entrepreneurial activity. The first two essays in the dissertation exploit institutional reforms - one in Denmark and another in the US - that changed the financing environment for new businesses to study how they impacted individuals' entry and survival. These natural experiments are supplemented with detailed and comprehensive micro data that allow me to both explore and the refine the mechanisms at play in more detail. The final paper is more descriptive in nature and examines how the variation in entrepreneurs' use of Diaspora networks in developing countries is related to the financing and networking environment of the city in which they are based.
Author: Aaron Kumar Chatterji
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ISBN:
Category :
Languages : en
Pages : 422
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Author: Jialong Li
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Category :
Languages : en
Pages : 0
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This dissertation consists of three essays that explore different areas within the framework of entrepreneurial finance. In my first essay, I investigate the relation between corporate financial distress and earnings management in politically-affiliated private firms in China. I further examine the joint moderating effects of political affiliation and regional development on this relation. The findings suggest that financially-distressed firms engage more in reporting small positive earnings relative to financially-healthy firms. In addition, political affiliation weakens the association between financial distress and small positive earnings management. In the second essay, I intend to shed light on social performance of microfinance institutions (MFIs) with respect to gender equality in MFIs' outreach and promotion of entrepreneurship. Rooted in the principles of homophily and risk aversion, I pinpoint a novel topic which is the association between female leadership in MFIs and their services targeting women clients, and find that when more women serve as managers, board members, and/or loan officers in MFIs, the MFIs increase their outreach to women due to gender affinity. Applying the institutional theory, I also analyze the relationship between MFI's outreach to female borrowers and entrepreneurship in an international setting, and highlight the moderating role played by legal environment in this relationship. Findings indicate that in countries with stronger legal environment, women are more inclined to enter entrepreneurship. In my last essay, I turn to look at family firm, which is perceived to behave quite differently compared with non-family firm. From socioemotional wealth preservation and board experience perspectives, I compile a sample of family-owned and -managed firms on the Standard and Poor's (S&P) 500 Index and examine the effect of family involvement on firm internationalization. The results show that the presence of a family member chairing the board impedes internationalization, but that this negative effect is reduced when board members are highly experienced. I also find that the involvement of multiple generations in the business contributes to the firm's internationalization, and that this effect is more pronounced when firms internationalize to geographically distant rather than closer regions. The contributions and implications of this study are also discussed.
