Jun Chen

Research Interests

Entrepreneurial Finance, Labor and Finance, Empirical Corporate Finance

Publications

• "Venture Capital and Startup Agglomeration," with Michael Ewens, Journal of Finance, 2024, Forthcoming.

Abstract: The paper studies venture capital's (VC) role in the geographic clustering of high-growth startups. We exploit a rule change that disproportionately impacted U.S. regions that historically lacked VC financing via a restriction of banks to invest in the asset class. A one-standard-deviation increase in VCs' exposure to the rule led to a 20% decline in fund size and a 10% decrease in the likelihood of raising a follow-on fund. Startups were not wholly cushioned: financing and valuations declined. Startups also moved out of impacted states after the rule change, likely exacerbating existing geographic disparity in entrepreneurship.

• "The Labor Effects of R&D Tax Incentives: Evidence from VC-Backed Startups," with Shenje Hshieh, Review of Finance, September 2024, Vol. 28(5), pp. 1451-1482.

- Editor's Choice

Abstract: We evaluate the impact of the PATH Act of 2015, which allowed some existing VC-backed startups to monetize their R&D tax credits against payroll taxes in the U.S. We show that marginally eligible startups increase their demand for R&D workers more than marginally ineligible startups after the PATH Act's enactment. These effects are stronger among startups that are financially constrained. Marginally eligible startups subsequently recruit workers with more education and experience and file more patents with new inventors. Our findings suggest payroll tax credits are effective in scaling startups and stimulating R&D activities through skilled labor recruitment.

• "Hiring High-Skilled Labor through Mergers and Acquisitions," with Shenje Hshieh and Feng Zhang, Journal of Financial and Quantitative Analysis, September 2024, Vol. 59(6), pp. 2762-2798.

Abstract: Using random H-1B visa lotteries as a natural experiment, we find that firms respond to shortages of high-skilled workers by acquiring firms that employ such workers. The effect is stronger among firms with high human capital and more senior workforces, firms facing tight labor markets and legal barriers to poaching workers, and firms lacking foreign affiliates. The acquired workers are highly educated, sharing skills and occupations similar to those of the acquirer’s existing workers. Our findings suggest skilled labor is an important driver of acquisitions and acquiring is an effective means of obtaining skilled labor.

• "Capability Accumulation and Conglomeratization in the Information Age," with Matthew Elliott and Andrew Koh, Journal of Economic Theory, 2023, Vol. 210, 105647.

Abstract: The past twenty years have witnessed the emergence of internet conglomerates fueled by acquisitions. We build a simple model of network formation to study this. Following the resource-based view of competitive advantage from the management literature we endow firms with capabilities which drive their competitiveness across markets. Firms can merge to combine their capabilities, spin-off new firms by partitioning their capabilities, or procure unassigned capabilities. We study stable industry structures (stable networks) in which none of these deviations are profitable. We find an upper and lower bound on the size of the largest firm, and show that as markets value more of the same capabilities abrupt increases in these bounds occur.

• "Venture Capital Research in China: Data and Institutional Details," solo, Journal of Corporate Finance, 2023, Vol. 81, 102239.

Abstract: Despite the remarkable growth of both China's tech sector and venture capital market, academic research in this area remains sparse. Two broad issues hinder the efforts of researchers studying this market: choosing the right data sources and understanding evolving institutional details. To address these two issues, I first describe available data sources, accompanied with filters aimed at improving the quality of the data. I then review institutional details unique to the Chinese setting and recent regulatory changes that have direct impacts on the Chinese venture capital market. I conclude by listing some open research questions.

• "The Role of High-Skilled Foreign Labor in Startup Performance: Evidence from Two Natural Experiments," with Shenje Hshieh and Feng Zhang, Journal of Financial Economics, 2021, Vol. 142(1), pp. 430-452.

     - Winner of 2019 TCU Finance Conference Best Paper Award

Abstract: We examine the role of high-skilled foreign labor in VC-backed startups through two natural experiments. First, we show that winning more H-1B visas in random lotteries enhances VC-backed startups’ financial performance, likelihood of going public, and quantity and quality of innovation. Second, we show that the H-1B quota reduction in 2004 caused permanent damage to the performance of startups that previously had used H-1B workers. The findings imply that high-skilled foreign workers possess skills or talents that are difficult to replace and that barriers to securing H-1B visas lower startups’ innovation and financial performance.

Working Papers

• "Immigrants in Finance," with Shenje Hshieh,  Melvyn Teo and Feng Zhang, 2023

Presentations: City University of Hong Kong, Singapore Management University, Southern Methodist University, the 2022 Financial Management Association Meetings in Atlanta, the 14th Annual Hedge Fund Conference in Paris, the 2023 Finance Down Under Conference in Melbourne, the 2023 Midwest Finance Association Meetings in Chicago, and the 2023 SGF Conference in Zurich 

Abstract: We examine the value of skilled immigrants in finance by exploiting two natural experiments. We find that hedge fund management companies that secure more H-1B visas in random lotteries deliver higher alphas, Sharpe ratios, and information ratios. Moreover, an unexpected reduction in the H-1B quota undermined the performance of hedge funds that were dependent on H-1B workers. The superior performance of funds with high H-1B visa allocations can be attributed to highly-educated, well-paid, and motivated H-1B workers with quantitative skills. H-1B workers add value by helping hedge funds overcome capacity constraints, arbitrage prominent stock anomalies, and develop distinctive investment strategies.

• "The Effects of the QSBS Exemption on Entrepreneurship and Innovation," with Joan Farre-Mensa, 2023

Presentations: Chinese University of Hong Kong, The Hong Kong Polytechnic University, Lehigh University, Nanyang Technological University, Renmin University, Singapore Management University, University of Illinois Chicago, University of Wilsconsin-Milwaukee, University of Georgia, The 2024 Western Finance Association (WFA) Meetings, 2024 Financial Intermediation Research Society (FIRS) Conference, ESADE Spring Workshop 2024, ShanghaiTech Finance Winter Workshop

Abstract: This paper studies the impact of capital gain taxation on entrepreneurship and innovation. We exploit a 2010 tax change that significantly reduced federal capital gain tax on the sale of qualified small business stock (QSBS). The change led to a 12% increase in firm births in eligible industries. The effect is stronger for industries with higher exit rate and STEM employment. Startups also become more likely to adopt employee equity compensation. These findings suggest that the tax change increases prospective entrepreneurs’ willingness to become founders and their ability to attract talent. Finally, the QSBS exemption change also promotes startup innovation. 

• "Did the Game Stop for Hedge Funds?" with Byoung-Hyoun Hwang and Melvyn Teo, 2023

Presentations: Singapore Management University, Sungkyunkwan University, Tokyo University, UBS Singapore, The 2024 EFA Annual Meetings, The 15th Annual Hedge Fund Research Conference in Paris

Abstract: Can retail investors on social media platforms effectively target hedge fund short positions? Our study demonstrates that the disclosure of hedge fund short positions triggers increased activity on WallStreetBets, which in turn drives up the prices of heavily shorted stocks. In line with a causal link, the effect of social media activity on stock returns emerges when the short sales are publicly disclosed, not when they are settled. The effect also strengthens when social media posts likely reflect coordination attempts against hedge funds and attenuates during trading restrictions imposed by Robinhood. The resultant price increases appear to have negatively impacted hedge funds' performances, leading them to adopt a less aggressive shorting strategy.

• "IP Protection, Innovation Incentives, and Patenting Strategies," with Zhao Jin, 2022

Presentations: 2021 Five Star Workshop

Abstract: We study how intellectual property (IP) protection impacts local firms' innovation incentives and patenting strategies. Exploiting the staggered establishment of specialized IP courts across Chinese regions, we show that strengthening IP protection leads to higher R&D investments but lower patenting activities. Higher litigation risk from disclosing inventions seems to dominate the benefit of stronger protections gained from patenting. Consistent with this explanation, we find that firms reduce patenting mainly in technology fields where their industry rivals have previously patented. Overall, our findings suggest that enhancing IP protection encourages more innovation efforts, possibly in uncharted technology areas.  

Publications in Math

• "A Generalized Pólya's Urn with Graph-based Interactions," with Michel Benaim, Itai Benjamini and Yuri Lima, Random Structures & Algorithms 46.4 (2015): 614-634.

• "Vertex-reinforced Random Walk on Z with Sub-square-root Weights Is Recurrent," with Gady Kozma, Comptes Rendus Mathematique 352.6 (2014): 521-524.

• "A Generalized Pólya's Urn with Graph-based Interactions: Convergence at Linearity," with Cyrille Lucas, Electronic Communications in Probability 19 (2014), No. 67, 1-13.

• "Two Particles' Repelling Random Walks on the Complete Graph," Solo Author, Electronic Journal of Probability 19 (2014), No. 113, 1-17.

• "Natural `Flow' Not in the Le Jan-Raimond Framework," with Kainan Xiang, Stochastics and Dynamics Vol. 12, No. 2 (2012) 1150014.

Teaching

• Renmin University of China, Beijing, China

  • Undergraduate Courses: 

    • Entrepreneurial Finance. 2022 - 2024. 

    • Venture Capital. 2021 - 2024. 

    • Financial Derivatives. 2018 - 2020.

  • PhD Courses: 

    • Research Topics in Corporate Finance. 2019 - 2024.

• California Institute of Technology, Pasadena, CA USA

  • Teaching Assistant for Professor Michael Ewens: Introduction to Financial Accounting. Spring 2017 - 2018.

  • Teaching Assistant for Professor Richard Roll: Introduction to Finance. Fall 2016.