Robust Financial Contracting and the Role of Venture Capitalists

We derive a role for inside investors, such as venture capitalists, in resolving various agency problems that arise in a multistage financial contracting problem. Absent an inside investor, the choice of securities is unlikely to reveal all private information, and overinvestment may occur. An inside investor, however, always makes optimal investment decisions if and only if he holds a fixed-fraction contract, where he always receives a fixed fraction of the project's payoff and finances that same fraction of future investments. This contract also eliminates any incentives of the venture capitalist to misprice securities issued in later financing rounds.     

The effect of external finance on the equilibrium allocation of capital

We develop an equilibrium model to understand how the efficiency of capital allocation depends on outside investor protection and the external financing needs of firms. We show that when capital allocation is constrained by poor investor protection, an increase in firms' external financing needs may improve allocative efficiency by fostering the reallocation of capital from low to high productivity projects. We also find novel empirical support for this prediction.     

On the nature of mean-variance spanning

Asset spanning tests are very useful tools for the determination of which asset classes belong to an investor's portfolio. There are numerous applications of such tools in the finance literature. What is not so obvious is the proper decision an investor should make if the extra asset classes are spanned by some existing assets. Should the investor make a conscious decision not to invest in them as they add no value? Should the investor invest in them anyway as they do no harm? This study provides an analytical solution to the puzzle and also offers an economic rationale.     

Capital income taxation and risk taking under prospect theory

This research examines capital income taxation for a prospect theory investor under some acceptable in the literature reference levels relative to which are the changes in the level of wealth valued. Depending on the reference level, some results indicate that it is possible for a capital income tax increase not to stimulate risk taking even if the tax code provides attractive full loss offset provisions. However, risk taking can be stimulated when investors compare their reference level with others. Risk taking can increase also if the investor interprets part of the tax as a loss instead as a reduced gain. Then the investor becomes risk seeking and moves away from the discomfort zone of relative losses. This later response to taxation causes private risk taking to increase.     

The causes and consequences of venture capital stage financing

This paper examines the causes and consequences of venture capital (VC) stage financing. Using information about the physical location of an entrepreneurial firm and the geographic distance between the VC investor and the firm, I show that VC investors located farther away from an entrepreneurial firm tend to finance the firm using a larger number of financing rounds, shorter durations between successive rounds, and investing a smaller amount in each round. However, VC investors' propensity to stage is independent of whether the firm is located in a close-knit community. I also find that VC staging positively affects the entrepreneurial firm's propensity to go public, operating performance in the initial public offering (IPO) year, and post-IPO survival rate, but only if the firm is located far away from the VC investor. However, the effect of VC staging on entrepreneurial firm's performance is independent of whether it is located in a close-knit community. The findings are robust to a variety of alternative proximity measures, instrumental variables, and econometric approaches for dealing with endogeneity problems.     

The role of trust and social commitment in start-up financing

Access to finance is a perennial problem for business start-ups. This article advances the extant literature on the determinants of entrepreneurial finance by presenting a comprehensive analysis of the amount needed to start a business, the amount of self-investment and the number of external sources of financing utilized. Based on information from the Global Entrepreneurship Monitor 2015, the empirical analysis shows that the availability of external sources of financing depend primarily on demographics, entrepreneurial experience, business features, e.g., export propensity and growth potential; and, on the phase of economic development. Furthermore, relatively high levels of social trust may increase the likelihood of obtaining external financing. The novelty of the product/service offered, financial barriers and investor/property rights protection in turn may also explain the proportion of self-investment provided to a new business. An analysis of financing options of socially-oriented businesses shows that they are more successful in obtaining financial support from private investors/venture capitalists and governments.     

Do Convertible Bond Issuers Cater to Investor Demand?

We examine the impact of fluctuations in investor demand for convertible securities on convertible bond issue volumes, pricing, and design. We find evidence of a positive impact of investor demand proxies on convertible bond issue volumes. We also document significantly lower convertible bond underpricing in periods with higher investor demand. The results hold in a variety of specifications, and are robust to controlling for firm‐specific and macroeconomic financing cost proxies. However, we obtain only limited evidence that issuers adjust the design of their convertible bond offerings in response to investor demand.     

R&D投资迎合行为:理性迎合渠道与股权融资渠道?——基于中国上市公司的经验证据

本文基于中国上市公司与投资者的行为互动视角,对公司R&D投资行为的误定价迎合性进行研究检验。总体而言,本文研究结果支持了R&D投资迎合行为假说,发现在中国制度环境下R&D投资迎合行为的实施主体为民营终极控制上市公司。误定价影响R&D投资的传导路径与股权融资渠道密切相关,与股票市场外部治理压力下的理性迎合渠道不显著相关,不存在公司管理者为最大化股权薪酬利益而迎合投资者短视的R&D投资行为。此外,R&D投资迎合行为与盈余管理行为之间的关联性也主要是通过股权融资渠道而结合起来。     

构建融资企业声誉机制的博弈分析

融资企业与投资者的博弈是重复博弈.重复博弈所包含的投资者对融资企业选择欺骗行为惩罚的可置信威胁,使融资企业具有塑造声誉的积极性,其基础是产权制度安排.据此,提出构建我国融资企业声誉机制的措施,就国有融资企业而言,在于明晰其产权,塑造人格化的产权主体,并进行产权交易;就民营企业而言,在于对其产权实行有效保护.     

Firm value in crisis: Effects of firm-level transparency and country-level institutions

Recent empirical research suggests that country-level and firm-level governance institutions are substitutes with respect to their effect on firm value. In this paper we demonstrate that during a crisis these institutions may actually become complements. Specifically, we find that the decline in companies’ valuation during the financial crisis of 2007–2009 was more sensitive to firm-level transparency in countries with stronger investor protection. We propose a theoretical model that reconciles our findings with the results in the literature. In our model, during “normal times” strong firm-level governance is crucial to attract outside financing in countries with weak investor protection, but is less important in countries with good investor protection. During a crisis, however, investment opportunities decline even in countries with strong investor protection, and, as a result, relative importance of firm-level governance increases in such places.