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New research on financial assets from Harvard Business School faculty on issues including capital budgeting, venture capital, and working capital.
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The Evolution of CEO Compensation in Venture Capital-Backed Startups

by Michael Ewens, Ramana Nanda, and Christopher Stanton

Resolving uncertainty related to market demand—so called “product-market” fit—marks a key inflection point in the compensation contract for CEOs of venture-capital backed firms.

Sticky Capital Controls

by Miguel Acosta-Henao, Laura Alfaro, and Andrés Fernández

One of the legacies of the 2007–2008 global financial crisis has been a reassessment of the potential for restriction of capital flows policies. This paper documents a set of stylized facts on capital controls along their intensive and extensive margins for emerging markets and document them to be “sticky.” We then rationalize them through a model that includes fixed cost of implementing such policies, which lower the welfare gains of implementation.

Financial Distancing: How Venture Capital Follows the Economy Down and Curtails Innovation

by Sabrina T. Howell, Josh Lerner, Ramana Nanda, and Richard Townsend

Common wisdom holds that VC investment and VC-backed startups are relatively insulated from downturns. This study shows that the relative quantity and quality of innovation declines more for VC-backed firms than for other types of firms during downturns.

Why Backstage Capital Invests in ‘Underestimated’ Entrepreneurs

Re: Laura Huang

Laura Huang discusses VC Arlan Hamilton’s strategy of backing entrepreneurs who have been ignored because of stereotypes, biases, and preconceptions. Open for comment; Comment(s) posted.

Can Capitalism Be Fixed by Making Companies More Just?

Re: Ethan C. Rouen, Charles C.Y. Wang

JUST Capital seeks to make public companies more "just" by measuring and ranking their overall impact on society, based on priorities most important to average Americans. Ethan Rouen and Charles Wang explore whether JUST Capital's performance evaluation methodology can improve corporate behavior. Open for comment; Comment(s) posted.

Varieties of Outward Chinese Capital: Domestic Politics Status and Globalization of Chinese Firms

by Meg Rithmire

Most popular and scholarly writing about China’s global push overemphasizes the power of the state. This paper explains how three types of domestic Chinese capital—state capital, private capital, and crony capital—differ in political vulnerability and pursue globalization in different ways. All prefer capital openness, but they do so for different reasons.

How Entrepreneurs Can Turn Lead Into Gold

by Michael Blanding

Innovative about creating new products, entrepreneurs often lose imagination when it comes to funding their dreams. Andy Wu reveals alternatives beyond friends and family. Open for comment; Comment(s) posted.

Lazy Prices

by Lauren Cohen, Christopher J. Malloy, and Quoc Nguyen

The most comprehensive information windows that firms provide to the markets—in the form of their mandated annual and quarterly filings—have changed dramatically over time, becoming significantly longer and more complex. When firms break from their routine phrasing and content, this action contains rich information for future firm stock returns and outcomes.

Diversity Boosts Profits in Venture Capital Firms

by Michael Blanding

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.

Is 'Gut Feel' a Good Reason to Invest in a Startup?

by Michael Blanding

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.

Government Incentives and Financial Intermediaries: The Case of Chinese Sell-Side Analysts

by Sheng Cao, Xianjie He, Charles C.Y. Wang, and Huifang Yin

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.

Op-Ed: Why BlackRock CEO Larry Fink Is Not a Socialist

by Bill George

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.

Do Banks Have an Edge?

by Juliane Begenau and Erik Stafford

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.

Private Equity and Financial Fragility During the Crisis

by Shai Bernstein, Josh Lerner, and Filippo Mezzanotti

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.

Coordination Frictions in Venture Capital Syndicates

by Ramana Nanda and Matthew Rhodes-Kropf

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.

Amazon Web Services Changed the Way VCs Fund Startups

by Michael Blanding

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.

Monetary Policy and Global Banking

by Falk Bräuning and Victoria Ivashina

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.

Patent Trolls and Small-Business Employment

by Ian Appel, Joan Farre-Mensa, and Elena Simintzi

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.

Diversity in Innovation

by Paul A. Gompers and Sophie Q. Wang

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.

The Persistent Effect of Initial Success: Evidence from Venture Capital

by Ramana Nanda, Sampsa Samila, and Olav Sorenson

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.