Presentations: Fourteenth Annual Conference on Innovation Economics, 34th Australasian Finance and Banking Conference, 2022 FIRS Finance Conference (accepted), 2022 WFA Conference (accepted)
We explore the role of financial-intermediary financing constraints in venture capital (VC). Exploiting the passage of the Volcker Rule as a shock on the
supply of VC funds, we find that the rule change disproportionately impacted regions of the U.S. historically lacking in VC financing. Local VC investors' exposure to the shock led to a decline in fund size and the likelihood of raising a follow-on fund. Startups simultaneously experienced increases in their own constraints: capital raised and pre-money valuations fell. Lastly, the likelihood startups move out of impacted states increases, thus exacerbating the geographic disparity in high-growth entrepreneurship.
Presentations: 2021 AFA Meetings, Fifth Annual Mergers & Acquisitions Research Centre Conference, 2021 FIRS Finance Conference, Labor & Finance Online Seminar, Corporate Finance Workshop, 2021 MFA Conference
In two natural experiments based on H-1B visa lotteries and a drastic cut in the annual H-1B visa quota, we document that firms respond to shortages in high-skilled workers by acquiring target firms that have these workers. Additional tests show that the desire for the target's skilled workers is an important driver of these acquisitions. Acquirers that successfully obtain skilled workers from their targets outperform acquirers that withdraw their acquisition bids for exogenous reasons. Our findings suggest that skilled labor is a driver of acquisition decisions and a source of synergy gains.
Presentations: Kellogg, Bocconi, Carnegie Mellon, Oxford, Glasgow, 2019 INFORMS Annual Meeting, 2017 AEA Meetings, 7th European Meeting on Networks, 6th Network Science in Economics Conference, Adansonia Conference, 72nd European Meeting of the Econometric Society
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 scarce 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.
Presentations: The 2021 New Zealand Finance Meeting, The 2021 AFA Annual Meeting, The 2021 Greater Bay Area Finance Conference, The 2022 MFA (accepted), Renmin University of China
We examine whether VC-backed startups respond to R&D tax incentives by attempting to scale R&D activities through employment. We exploit a provision of the PATH Act of 2015, which allows qualified small businesses to offset payroll taxes with R&D tax credits, and show that marginally eligible startups increase their demand for R&D workers more than marginally ineligible startups after the PATH Act’s enactment in 2015. Marginally eligible startups not only ramp up recruiting of workers of higher quality, but also subsequently file more patents with new inventors. Our findings reveal that tax incentives can stimulate startup R&D activities through skilled labor recruitment.
Presentations: City University of Hong Kong
We examine the value of skilled foreign labor for hedge funds by leveraging on two natural experiments. We find that hedge funds 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 allocations can be attributed to highly-educated STEM majors operating systematic strategies. Notwithstanding the valuable skills that foreign workers possess, racial and ethnic homophily induces some fund managers to eschew foreign labor.
Exploiting the establishment of Chinese specialized IP courts across regions over time as a shock to IPR protection, we empirically investigate how IPR protection impacts innovation. Measuring innovation by both input and output, we find that the relationship between strengthening IPR protection and firm innovation is a subtle one: it increases firms' incentives to innovate on one hand, while reducing their incentives to rely on the patent system to protect their innovation on the other hand. The finding that stronger IPR protection leads to a lower number of patents also points to a litigation cost channel in which firms reduce their patent filings concerning of the litigation risks brought by those patents. Overall, our findings suggest that IPR protection changes firms' innovation incentives and their interaction with the patent system.
This paper focuses on angel financing, and its interaction with the venture capital (VC) market. I collect the first systematic dataset on angel financing. Using this data, I find that the angel capital market is large, and angel financing has causal impacts on VCs: initial angel investments lead VCs to re-allocate financing from early to later rounds.