Working Papers

Corporate Venture Capital and Startup Survival, Job Market Paper

(Presented at Conference on FinTech, Innovation and Development, CFID 2022)

Abstract: This paper examines the causal effect of corporate venture capital (CVC) investors on the survival of startups. Using parent firm merger and acquisition events as a shock to geographical exposure to venture arms thereof, I find that exposure to CVCs increases the likelihood of having a next round and having a successful exit subsequently. The hazard rate of a next round and that of a successful exit are, respectively, 3% and 7% higher with the CVC exposure than without it. Exposures to CVCs attract better-networked VC investors. Exposure to better-networked CVCs only increases the likelihood of a next round but not that of a successful exit after the current round.

Can Old Sin Make New Shame? Stock Market Reactions to the Release of Movies Re-Exposing Past Corporate Scandals, with Han Jiang, Le (Lexi) Kang, and Ziye (Zoe) Nie Link

(Presented at FMA 2021, CICF 2021; Media Coverage: Harvard Law School Forum on Corporate Governance Link )

Abstract: We study stock market reactions to the release of movies re-exposing past publicly known corporate scandals. Using a sample of 54 event firms featured in 23 movies, we find event firms have significantly negative and persistent abnormal returns to movie releases. We posit that such negative reactions are associated with the adverse public perception of event firms induced by scandal re-exposing movies. Consistent with this hypothesis, we find more pronounced negative abnormal returns for firms featured in more popular movies. Moreover, event firms experience downward earnings forecast revisions and increased implied costs of capital following movie releases.

Earnouts as Lotteries? Gambling Attitudes and Earnout Contracting in M&A Transactions, with Yongmei Cui, Xiaohong Ma, and Linlin Zhang

Abstract: This paper examines the impact of gambling attitudes on the use of earnouts in mergers and acquisitions. Target firms located in gambling-prone regions are more likely to use earnout contracts in merger and acquisition transactions. This impact is stronger when target firms have higher information complexity and valuation uncertainty. Furthermore, stronger gambling preference leads to both higher earnout amounts and higher merger and acquisition premiums for target firms. That is, both the cost and the benefit of signing earnout contracts increase simultaneously for targets. Lastly, additional analysis shows that the impact of local gambling attitudes on the use of earnouts is attenuated when target firms are stringently monitored or when acquiring firms have information advantages. Our results are robust to a battery of sensitivity tests after addressing possible endogeneity issues using instrumental variable approach and propensity score matching. Overall, these findings suggest that local gambling attitudes help explain the use of earnout contracts in merger and acquisition transactions.

Work in Progress

Innovation and Spinoffs, with Venkat Subramaniam, and Sheri Tice

Conference Call and Corporate Investment, with Da Xu

Air Pollution and Corporate Social Responsibility, with Le “Lexi” Kang, and Yuchen Zhang