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on Corporate Finance |
| By: | Sophie Pommet (GREDEG CNRS; University of Nice-Sophia Antipolis, France) |
| Abstract: | Using a sample of 212 IPOs, this paper analyzes the impact of venture capital involvement on the survival time of French IPOs. We find that the ability of venture capitalists to improve the survival of companies is related to the duration of their investment. We show that venture capitalists do not create additional value if investment duration is too short while longer duration allows venture capitalists to monitor the firm efficiently. Our paper provides some interesting results that qualify the findings from empirical studies that highlight the absence of a positive effect of this financing on firm performance in France. |
| Keywords: | Venture capital, IPO, survival, France |
| JEL: | G24 G32 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2013-32&r=cfn |
| By: | Johansson, Anders C. (Stockholm China Economic Research Institute); Feng, Xunan (Shanghai University) |
| Abstract: | This paper investigates CEO incentives in Chinese state-controlled firms. We find that firm performance has a positive effect on CEO compensation. We also find that firm performance is positively associated with CEO promotion and negatively associated with CEO turnover. CEOs for state-controlled firms thus face significant incentives, not only in monetary form, but also in terms of career prospects. These results suggest that the CEO labor market in the Chinese state sector exhibits characteristics similar to those of managerial labor markets in developed countries, at least during our sample period. Moreover, we show that local institutions have a significant impact on the relationship between CEO incentives and firm performance, with performance having a larger effect on CEO compensation, promotion and turnover in regions characterized by stronger institutions. Overall, our results demonstrate that firm performance is associated with CEO incentives also for state-controlled firms in China, suggesting that there is a functioning labor market for top managers in the Chinese state sector. |
| Keywords: | State-controlled firms; Managerial labor market; Performance; CEO compensation; CEO promotion; CEO turnover; China |
| JEL: | G30 G38 J30 M52 P30 |
| Date: | 2013–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hascer:2013-027&r=cfn |
| By: | Arthur Korteweg; Stefan Nagel |
| Abstract: | Performance evaluation of venture-capital (VC) payoffs is challenging because payoffs are infrequent, skewed, realized over endogenously varying time horizons, and cross- sectionally dependent. We show that standard stochastic discount factor (SDF) methods can be adapted to handle these issues. Our approach generalizes the Public Market Equivalent (PME) measure commonly used in the private-equity literature. We find that the abnormal returns from both VC funds and VC start-up investments are robust to relaxing the strong distributional assumptions and implicit SDF restrictions from the prior literature: VC start-up investments earn substantial positive abnormal returns, and VC fund abnormal returns are close to zero. We further show that the systematic component of start-up company and VC fund payoffs resembles the negatively skewed payoffs from selling index put options, which contrasts with the call option-like positive skewness of the idiosyncratic payoffs. Motivated by this finding, we explore an SDF that includes index put option returns. This results in negative abnormal returns to VC funds, while the abnormal returns to start-up investments remain large and positive. |
| JEL: | G12 G32 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19347&r=cfn |
| By: | Ramana Nanda; Matthew Rhodes-Kropf |
| Abstract: | Our paper demonstrates that while failure tolerance by investors may encourage potential entrepreneurs to innovate, financiers with investment strategies that tolerate early failure endogenously choose to fund less radical innovations. Failure tolerance as an equilibrium price that increases in the level of experimentation. More experimental projects that don't generate enough to pay the price cannot be started. In equilibrium all competing financiers may choose to offer failure tolerant contracts to attract entrepreneurs, leaving no capital to fund the most radical, experimental projects. The tradeoff between failure tolerance and a sharp guillotine helps explain when and where radical innovation occurs. |
| JEL: | G24 G39 O31 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19379&r=cfn |
| By: | Alex Edmans; Mirko Heinle; Chong Huang |
| Abstract: | This paper models the effect of disclosure on real investment. We show that, even if the act of disclosure is costless, a high-disclosure policy can be costly. Some information ("soft") cannot be disclosed. Increased disclosure of "hard" information augments absolute information and reduces the cost of capital. However, by distorting the relative amounts of hard and soft information, increased disclosure induces the manager to improve hard information at the expense of soft, e.g. by cutting investment. Investment depends on asset pricing variables such as investors' liquidity shocks; disclosure depends (non-monotonically) on corporate finance variables such as growth opportunities and the manager's horizon. Even if a low disclosure policy is optimal to induce investment, the manager may be unable to commit to it. If hard information turns out to be good, he will disclose it regardless of the preannounced policy. Government intervention to cap disclosure can create value, in contrast to common calls to increase disclosure. |
| JEL: | G18 G31 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19420&r=cfn |