Capital
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- 02 Apr 2018
- Research & Ideas
Is 'Gut Feel' a Good Reason to Invest in a Startup?
Most investments in startups should never be made, at least when using by-the-numbers reasoning. But funded they are. Laura Huang believes investors use gut instinct to manage that risk. Open for comment; Comment(s) posted.
- 29 Mar 2018
- Working Paper Summaries
Government Incentives and Financial Intermediaries: The Case of Chinese Sell-Side Analysts
This study is the first to examine analysts’ incentives vis-à-vis the government in a context where government has the ability and motives to influence capital market institutions. The paper highlights the role of government incentives in analysts’ behavior and output.
- 12 Mar 2018
- Op-Ed
Op-Ed: Why BlackRock CEO Larry Fink Is Not a Socialist
BlackRock CEO Larry Fink’s open letter to CEOs has reignited the “shareholders versus stakeholders” debate. Bill George says it's actually not much of a debate: mission-driven, values-centered companies perform better. Open for comment; Comment(s) posted.
- 29 Jan 2018
- Working Paper Summaries
Do Banks Have an Edge?
Reliance on high leverage is one distinctive component of the bank business model. This study suggests that the aggregate United States banking sector was relatively inefficient between 1960 and 2015. The falling costs of new production technologies in capital markets may further advantage capital markets over banks.
- 04 Aug 2017
- Working Paper Summaries
Private Equity and Financial Fragility During the Crisis
Examining the activity of almost 500 private equity-backed companies during the 2008 financial crisis, this study finds that during a time in which capital formation dropped dramatically, PE-backed companies invested more aggressively than peer companies did. Results do not support the hypothesis that private equity contributed to the fragility of the economy during the recent financial crisis.
- 11 May 2017
- Working Paper Summaries
Coordination Frictions in Venture Capital Syndicates
A startup typically has more than one investor, each with different incentives. Drawing on the authors’ experience, this paper documents frictions occurring when VCs with differing objectives work together in syndicates. Entrepreneurs must be careful about selecting and building the syndicate of VCs who back their firm.
- 10 May 2017
- Research & Ideas
Amazon Web Services Changed the Way VCs Fund Startups
Starting companies is becoming so quick and cheap that venture capitalists have shifted strategy funding entrepreneurs. Now, more startups get backing—but they have to prove themselves in a hurry, according to research by Ramana Nanda and colleagues. Open for comment; Comment(s) posted.
- 08 May 2017
- Working Paper Summaries
Monetary Policy and Global Banking
Global banks commonly move funds across markets to respond to differential monetary policy changes. This paper finds that cross-currency flows affect the cost of foreign exchange hedging, ultimately affecting credit supply in different currencies. The traditional view of how global banks respond to local shocks is weakened and, for major currencies, breaks down.
- 28 Feb 2017
- Working Paper Summaries
Patent Trolls and Small-Business Employment
Patent trolls are organizations that own patents but do not make or use the patented technology directly, instead using their patent portfolios to target firms with patent-infringement claims. This paper provides evidence that state anti-troll laws have had a net positive effect for small firms in high-tech industries. There is no significant effect for larger or non-high-tech firms.
- 13 Feb 2017
- Working Paper Summaries
Diversity in Innovation
This study discusses a systematic and persistent lack of female, Hispanic, and African American labor market participation in the innovation sector, through both entrepreneurs and the venture capitalists that fund them.
- 10 Feb 2017
- Working Paper Summaries
The Persistent Effect of Initial Success: Evidence from Venture Capital
To understand better what channels might account for persistence in the fund-level performance of private equity firms, the authors examine the individual investments underlying fund-level returns.
- 23 Sep 2016
- Working Paper Summaries
How Do Venture Capitalists Make Decisions?
This study surveys 885 institutional VCs at 681 firms asking how they make decisions across eight areas: deal sourcing; investment selection; valuation; deal structure; post-investment value-added; exits; internal VC firm issues; and external VC firm issues.
- 01 Sep 2016
- Cold Call Podcast
Behind Apple's Tax Situation, an Unprecedented Financial Policy
The European Union recently hit Apple with a $14.5 billion tax bill, but that’s hardly the first or worst financial challenge the technology giant has faced. Mihir Desai explains the financial wiring behind the inventors of the iPhone. Open for comment; Comment(s) posted.
- 17 Aug 2016
- Working Paper Summaries
Venture Capital Data: Opportunities and Challenges
Venture capital is a relatively small financial institution receiving a large amount of theoretical, empirical, policy, and media interest—perhaps because venture capital encompasses the extremes of corporate finance challenges: uncertainty, information asymmetry, and asset intangibility—and yet has been successful at growing many leading companies. This paper looks at the availability of information about venture capital. While it is it is difficult to paint in definitive terms the level of investment activity and fund performance, the quality of information available has increased in recent years and will likely continue to do so going forward.
- 02 Aug 2016
- Working Paper Summaries
Financial Regulation in a Quantitative Model of the Modern Banking System
This study at the intersection of macroeconomics and banking explores the optimal regulation of banks. Studying and quantifying the effects of capital requirements in a model that features regulated (commercial) and unregulated (shadow) banks, the authors find that a higher capital requirement makes regulated banks safer, but does not affect the riskiness of shadow banks. The net benefit of such a policy would depend on the level of fragility of the unregulated banks.
- 21 Jul 2016
- Cold Call Podcast
How Small Investors Can Bet Big on Brands They Love
LOYAL3 allows consumers to make small stock purchases of companies they love. In this Cold Call podcast, Luis M. Viceira discusses LOYAL3's move into IPOs and the idea that shareholders make better customers. Open for comment; Comment(s) posted.
- 18 Jul 2016
- Research & Ideas
Is Greed Ruining Private Equity Firms?
In a first-ever look at the internal economics driving private equity partnerships, Victoria Ivashina and Josh Lerner find that founding partners who take an unequal share of the pie can ruin their firms. Open for comment; Comment(s) posted.
- 15 Jun 2016
- Research & Ideas
These VC Partners May Make Your Firm Less Innovative
Startups that do business with VCs that also fund competitors may find they get the short end of the attention stick and produce fewer new products, concludes research by Rory McDonald and colleagues. Open for comment; Comment(s) posted.
- 03 May 2016
- Working Paper Summaries
Pay Now or Pay Later? The Economics within the Private Equity Partnership
Partnerships are essential to the professional service and investment sectors. Yet the partnership structure raises issues including intergenerational continuity. This study of more than 700 private equity partnerships finds 1) the allocation of fund economics is typically weighted toward the founders of the firms, 2) the distributions of carried interest and ownership substantially affect the stability of the partnership, and 3) partners’ departures have a negative effect on private equity groups’ ability to raise additional funds.
Diversity Boosts Profits in Venture Capital Firms
VC firms that score high in diversity among their partners also tend to be more profitable, according to Paul Gompers. Open for comment; Comment(s) posted.