We exploit the staggered introduction of liability waivers when investors hold stakes in conflicting business opportunities as a shock to venture capital (VC) investment and director networks. After the law changes, we find increases in within-industry VC investment and common directors serving on startup boards. Despite the potential for rent extraction, same-industry startups inside VC portfolios benefit by raising more capital, failing less, and exiting more successfully. VC directors serving on other startup boards are the primary mechanism associated with positive outcomes, consistent with common VC investment facilitating informational exchanges in VC portfolios.
{"title":"Common Venture Capital Investors and Startup Growth","authors":"Ofer Eldar, Jillian Grennan","doi":"10.1093/rfs/hhad071","DOIUrl":"https://doi.org/10.1093/rfs/hhad071","url":null,"abstract":"We exploit the staggered introduction of liability waivers when investors hold stakes in conflicting business opportunities as a shock to venture capital (VC) investment and director networks. After the law changes, we find increases in within-industry VC investment and common directors serving on startup boards. Despite the potential for rent extraction, same-industry startups inside VC portfolios benefit by raising more capital, failing less, and exiting more successfully. VC directors serving on other startup boards are the primary mechanism associated with positive outcomes, consistent with common VC investment facilitating informational exchanges in VC portfolios.","PeriodicalId":21124,"journal":{"name":"Review of Financial Studies","volume":"38 3","pages":""},"PeriodicalIF":8.2,"publicationDate":"2023-09-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"50166790","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Modern asset pricing models combine recursive preferences with complex dynamics for the underlying consumption process. The existence of solutions is for many of these models an unsettled question. This paper introduces a novel technique to prove existence and nonexistence, as well as uniqueness for models with recursive preferences. The approach applies to many models of interest, including those with long-run consumption risks, with stochastic volatility and jumps, with time-varying consumption disasters, and with smooth ambiguity aversion and learning. Collectively, the proven results settle the existence question for many of today’s leading asset pricing models.
{"title":"Existence of the Wealth-Consumption Ratio in Asset Pricing Models with Recursive Preferences","authors":"W. Pohl, K. Schmedders, Ole Wilms","doi":"10.1093/rfs/hhad069","DOIUrl":"https://doi.org/10.1093/rfs/hhad069","url":null,"abstract":"\u0000 Modern asset pricing models combine recursive preferences with complex dynamics for the underlying consumption process. The existence of solutions is for many of these models an unsettled question. This paper introduces a novel technique to prove existence and nonexistence, as well as uniqueness for models with recursive preferences. The approach applies to many models of interest, including those with long-run consumption risks, with stochastic volatility and jumps, with time-varying consumption disasters, and with smooth ambiguity aversion and learning. Collectively, the proven results settle the existence question for many of today’s leading asset pricing models.","PeriodicalId":21124,"journal":{"name":"Review of Financial Studies","volume":" ","pages":""},"PeriodicalIF":8.2,"publicationDate":"2023-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41805088","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Thummim Cho, Lukas Kremens, Dongryeol Lee, Christopher Polk
Abstract We propose a loglinear present-value identity in which investment (“scale”), profitability (“yield”), and discount rates determine a firm’s market-to-book ratio. Our identity reconciles existing influential market-to-book decompositions and facilitates novel insights from three empirical applications: (1) Both investment and profitability are important contributors to the value spread and stock return news variance. (2) Any cross-sectional return predictability has a mirror image in cash-flow fundamentals, providing asset pricing theories with additional moments to match. (3) The investment spread significantly improves the predictability of time-series variation in the value premium and justifies the poor performance of value in recent years. Received January 30, 2022; editorial decision June 6, 2023 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online
{"title":"Scale or Yield? A Present-Value Identity","authors":"Thummim Cho, Lukas Kremens, Dongryeol Lee, Christopher Polk","doi":"10.1093/rfs/hhad068","DOIUrl":"https://doi.org/10.1093/rfs/hhad068","url":null,"abstract":"Abstract We propose a loglinear present-value identity in which investment (“scale”), profitability (“yield”), and discount rates determine a firm’s market-to-book ratio. Our identity reconciles existing influential market-to-book decompositions and facilitates novel insights from three empirical applications: (1) Both investment and profitability are important contributors to the value spread and stock return news variance. (2) Any cross-sectional return predictability has a mirror image in cash-flow fundamentals, providing asset pricing theories with additional moments to match. (3) The investment spread significantly improves the predictability of time-series variation in the value premium and justifies the poor performance of value in recent years. Received January 30, 2022; editorial decision June 6, 2023 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online","PeriodicalId":21124,"journal":{"name":"Review of Financial Studies","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135890504","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract This paper studies the real effects of foreign real estate capital inflows. Using transaction-level data, we document (i) a “China shock” in the U.S. housing market characterized by surging foreign Chinese housing purchases after 2008, and (ii) “home bias” in these purchases, as they concentrate in neighborhoods historically populated by ethnic Chinese. Exploiting their temporal and spatial variation, we find that these capital inflows raise local employment, with the effect transmitted through a housing net worth channel. However, they displace local lower-income residents. Our results show that real estate capital inflows can both stimulate the real economy and induce gentrification. Received March 2, 2021; editorial decision June 30, 2023 by Editor . Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online
{"title":"Local Effects of Global Capital Flows: A China Shock in the U.S. Housing Market","authors":"Zhimin Li, Leslie Sheng Shen, Calvin Zhang","doi":"10.1093/rfs/hhad067","DOIUrl":"https://doi.org/10.1093/rfs/hhad067","url":null,"abstract":"Abstract This paper studies the real effects of foreign real estate capital inflows. Using transaction-level data, we document (i) a “China shock” in the U.S. housing market characterized by surging foreign Chinese housing purchases after 2008, and (ii) “home bias” in these purchases, as they concentrate in neighborhoods historically populated by ethnic Chinese. Exploiting their temporal and spatial variation, we find that these capital inflows raise local employment, with the effect transmitted through a housing net worth channel. However, they displace local lower-income residents. Our results show that real estate capital inflows can both stimulate the real economy and induce gentrification. Received March 2, 2021; editorial decision June 30, 2023 by Editor . Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online","PeriodicalId":21124,"journal":{"name":"Review of Financial Studies","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-08-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135772370","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a dynamic model of costly stock short-selling and lending market and obtain implications that simultaneously support many empirical regularities related to short-selling. In our model, investors’ belief disagreement leads to shorting demand, whereby short-sellers pay shorting fees to borrow stocks from lenders. Our main novel results are as follows. Short interest is positively related to shorting fee and predicts stock returns negatively. Higher short-selling risk can be associated with lower stock returns and less short-selling activity. Stock volatility is increased under costly short-selling. An application to GameStop episode yields implications consistent with observed patterns.
{"title":"Dynamic Equilibrium with Costly Short-Selling and Lending Market","authors":"Adem Atmaz, Suleyman Basak, Fangcheng Ruan","doi":"10.1093/rfs/hhad060","DOIUrl":"https://doi.org/10.1093/rfs/hhad060","url":null,"abstract":"We develop a dynamic model of costly stock short-selling and lending market and obtain implications that simultaneously support many empirical regularities related to short-selling. In our model, investors’ belief disagreement leads to shorting demand, whereby short-sellers pay shorting fees to borrow stocks from lenders. Our main novel results are as follows. Short interest is positively related to shorting fee and predicts stock returns negatively. Higher short-selling risk can be associated with lower stock returns and less short-selling activity. Stock volatility is increased under costly short-selling. An application to GameStop episode yields implications consistent with observed patterns.","PeriodicalId":21124,"journal":{"name":"Review of Financial Studies","volume":"36 2","pages":""},"PeriodicalIF":8.2,"publicationDate":"2023-08-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"50167371","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Hedge fund teams with heterogeneous educational backgrounds, academic specializations, work experiences, genders, and races, outperform homogeneous teams after adjusting for risk and fund characteristics. An event study of manager team transitions, instrumental variable regressions, and an analysis of managers who simultaneously operate solo- and team-managed funds address endogeneity concerns. Diverse teams deliver superior returns by arbitraging more stock anomalies, avoiding behavioral biases, and minimizing downside risks. Moreover, diversity allows hedge funds to circumvent capacity constraints and generate persistent performance. Our results suggest that diversity adds value in asset management.
{"title":"Diverse Hedge Funds","authors":"Yan Lu, Narayan Y Naik, Melvyn Teo","doi":"10.1093/rfs/hhad064","DOIUrl":"https://doi.org/10.1093/rfs/hhad064","url":null,"abstract":"Hedge fund teams with heterogeneous educational backgrounds, academic specializations, work experiences, genders, and races, outperform homogeneous teams after adjusting for risk and fund characteristics. An event study of manager team transitions, instrumental variable regressions, and an analysis of managers who simultaneously operate solo- and team-managed funds address endogeneity concerns. Diverse teams deliver superior returns by arbitraging more stock anomalies, avoiding behavioral biases, and minimizing downside risks. Moreover, diversity allows hedge funds to circumvent capacity constraints and generate persistent performance. Our results suggest that diversity adds value in asset management.","PeriodicalId":21124,"journal":{"name":"Review of Financial Studies","volume":"34 4","pages":""},"PeriodicalIF":8.2,"publicationDate":"2023-08-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"50167375","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We present the first comprehensive study of mutual fund voting in proxy contests. Among contests where voting takes place, passive funds are 10 percentage points less likely than active funds to vote for dissidents. The gap shrinks significantly when accounting for votes withheld from management nominees, settled contests, and votes by non- “Big-Three” fund families. Passive and active funds are equally informed about firm fundamentals, although passive funds view contest-related SEC filings more often than active funds during contests, in absolute levels and incrementally relative to noncontest periods. We conclude that passive funds are engaged shareholders in high-stakes voting events.
{"title":"Shareholder Monitoring through Voting: New Evidence from Proxy Contests","authors":"Alon Brav, Wei Jiang, Tao Li, James Pinnington","doi":"10.1093/rfs/hhad066","DOIUrl":"https://doi.org/10.1093/rfs/hhad066","url":null,"abstract":"\u0000 We present the first comprehensive study of mutual fund voting in proxy contests. Among contests where voting takes place, passive funds are 10 percentage points less likely than active funds to vote for dissidents. The gap shrinks significantly when accounting for votes withheld from management nominees, settled contests, and votes by non- “Big-Three” fund families. Passive and active funds are equally informed about firm fundamentals, although passive funds view contest-related SEC filings more often than active funds during contests, in absolute levels and incrementally relative to noncontest periods. We conclude that passive funds are engaged shareholders in high-stakes voting events.","PeriodicalId":21124,"journal":{"name":"Review of Financial Studies","volume":" ","pages":""},"PeriodicalIF":8.2,"publicationDate":"2023-08-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44587533","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Meghana Ayyagari, Asli Demirguc-Kunt, Vojislav Maksimovic
The large divergence in the returns of top-performing star firms and the rest of the economy is substantially reduced when we account for the mismeasurement of intangible capital. Star firms produce and invest more per dollar in invested capital, have more valuable innovations as measured by the market value of patents, and are as exposed to competitive shocks as nonstars. Star firms have higher markups that are predicted early in their life cycle at a time when they are small. Overall, after we correct for the mismeasurement of intangibles, the evidence points to the superior ability of star firms.
{"title":"The Rise of Star Firms: Intangible Capital and Competition","authors":"Meghana Ayyagari, Asli Demirguc-Kunt, Vojislav Maksimovic","doi":"10.1093/rfs/hhad065","DOIUrl":"https://doi.org/10.1093/rfs/hhad065","url":null,"abstract":"The large divergence in the returns of top-performing star firms and the rest of the economy is substantially reduced when we account for the mismeasurement of intangible capital. Star firms produce and invest more per dollar in invested capital, have more valuable innovations as measured by the market value of patents, and are as exposed to competitive shocks as nonstars. Star firms have higher markups that are predicted early in their life cycle at a time when they are small. Overall, after we correct for the mismeasurement of intangibles, the evidence points to the superior ability of star firms.","PeriodicalId":21124,"journal":{"name":"Review of Financial Studies","volume":"34 1","pages":""},"PeriodicalIF":8.2,"publicationDate":"2023-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"50167377","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We show that banks cross-sell future deposits and loans to existing household depositors. A bank is 20-percentage-points more likely to sell a loan to an existing depositor than to an otherwise comparable household. Existing depositors pay a premium when borrowing, and we find no indication that banks obtain an informational advantage on such borrowers, suggesting that the cross-selling is driven more by demand than by supply complementarities. These demand complementarities are in turn driven more by stickiness rather than by unobserved persistent preferences. Finally, banks internalize future cross-selling potential when setting deposit rates.
{"title":"Cross-Selling in Bank-Household Relationships: Mechanisms and Implications for Pricing","authors":"Christoph Basten, Ragnar E. Juelsrud","doi":"10.1093/rfs/hhad062","DOIUrl":"https://doi.org/10.1093/rfs/hhad062","url":null,"abstract":"\u0000 We show that banks cross-sell future deposits and loans to existing household depositors. A bank is 20-percentage-points more likely to sell a loan to an existing depositor than to an otherwise comparable household. Existing depositors pay a premium when borrowing, and we find no indication that banks obtain an informational advantage on such borrowers, suggesting that the cross-selling is driven more by demand than by supply complementarities. These demand complementarities are in turn driven more by stickiness rather than by unobserved persistent preferences. Finally, banks internalize future cross-selling potential when setting deposit rates.","PeriodicalId":21124,"journal":{"name":"Review of Financial Studies","volume":" ","pages":""},"PeriodicalIF":8.2,"publicationDate":"2023-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41500730","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We propose a security design model in which a potential acquirer approaches a firm with a value-add plan. The target has a single owner, who possesses private information: he alone knows whether his firm is compatible with the plan. The owner agrees that the acquirer will add value but believes that the value-add will not be as much as what the acquirer expects. Although the acquirer can choose any monotone limited liability security to offer along with cash, we show that, under general conditions, any security that is employed always takes the form of nonrecourse debt provided by the seller.
{"title":"Seller Debt in Acquisitions of Private Firms: A Security Design Approach","authors":"Mark Jansen, Ludovic Phallipou, Thomas Noe","doi":"10.1093/rfs/hhad063","DOIUrl":"https://doi.org/10.1093/rfs/hhad063","url":null,"abstract":"We propose a security design model in which a potential acquirer approaches a firm with a value-add plan. The target has a single owner, who possesses private information: he alone knows whether his firm is compatible with the plan. The owner agrees that the acquirer will add value but believes that the value-add will not be as much as what the acquirer expects. Although the acquirer can choose any monotone limited liability security to offer along with cash, we show that, under general conditions, any security that is employed always takes the form of nonrecourse debt provided by the seller.","PeriodicalId":21124,"journal":{"name":"Review of Financial Studies","volume":"33 3","pages":""},"PeriodicalIF":8.2,"publicationDate":"2023-08-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"50167379","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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