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This paper examines the benefits of syndicating with foreign venture capital (VC) firms for domestic VC firms in emerging markets. We find that the VC firms that are domestic to their invested companies and previously syndicated with foreign partners invest proportionately more frequently in riskier ventures. After gaining syndication experience with foreign VC firms, a larger number of their portfolio companies are successfully exited, thereby suggesting improved performance. We hypothesize that this outcome is due to the organizational learning effects. While the previous research has shown benefits for foreign VC firms, our results show that domestic VC firms also benefit from international syndication through improved investments.

This study is set against the background of the growing internationalization of venture capital (VC) investing and is the first global comparison of the returns generated by individual domestic and cross-border deals. We examine investments worldwide during 1971 to 2009 and find that cross-border investments significantly underperform compared with equivalent domestic investments. Returns are negatively affected by geographic distances, cultural disparities, and institutional differences between the home and host countries. Returns on cross-border and domestic deals also decline after the late 1990s. International portfolio diversification and the saturation of domestic markets may explain why VC investors make cross-border investments despite poor expected returns.

Recent U.S. policy encourages anchor investments to facilitate initial public offerings (IPOs) and increase companies' access to external finance. As access to external funds relies on stocks remaining listed, we study anchor investors' impact on how long IPOs stay listed. We examine two types of anchor investors in Hong Kong: strategic and cornerstone investors, that are similar to U.S. anchor investors, but show varying levels of commitment to the IPO. We find that IPOs backed by more committed investors, with longer post-IPO commitments (lockups), stay listed longer. This suggests that the success of U.S. policies may require investors' commitment.

We examine the use of warrants as a part of underwriter compensation in IPOs listed on the Alternative Investment Market (AIM) of the London Stock Exchange. Our results show that, though warrant-issuing IPO firms are riskier, they are usually underwritten by reputable underwriters. Firms that are cash constrained at the time of their IPO are more likely to use warrants. Both market volatility and hot issue markets increase the likelihood of firms issuing warrants. We also find that warrant issuers are able to minimise their total costs of going public, even under a very light regulatory setting with regards non-cash compensation. They incur actual costs of 29.1%, but would have incurred greater costs of 33.8% had they not issued warrants to their underwriters. Overall, our results support the cost minimisation explanation of the use of warrants by UK IPO firms.

We show that public suppliers extend more trade credit than their private counterparts. The impact of stock market listing on accounts receivable is more pronounced among firms that are financially more constrained or more reliant on external finance. Moreover, firms significantly increase their trade credit provision following equity issuances in stock exchanges. These results are consistent with the argument that stock market listing status improves firms' access to external sources of financing, especially equity capital, thus enhancing their ability to offer more trade credit to customers.

This paper examines the benefits to venture capital firms of their officers holding directorships in mature public companies in terms of fundraising and investment performance. Our empirical results show that venture capital firms raise more funds, set higher fund-raising targets, and are more likely to successfully exit their investments post-appointment of their officers to boards of directors of S&P 1500 companies. Directorship status in mature public firms provides venture capital firms with enhanced networks, visibility, and credibility, all of which facilitate their fundraising activities. In addition, the knowledge, expertise, and experience acquired through holding directorships in mature public firms are beneficial for their portfolio companies, as measured by the likelihood of successful exits.

We investigate loan price in mergers and acquisitions (M&As), using hand-matched loan information for a sample of 512 U.S. M&A transactions. We find the relative size of a deal constitutes a prominent determinant of the loan price measured by the all-in spread drawn (AISD). This result is robust to several specifications that address endogeneity concerns. Cross-sectional analyses show that aggravated credit risk and information uncertainty after M&A go some way towards explaining lenders' concerns over large relative deal size. Further analysis demonstrates higher AISD is associated with lower post-transaction performance, indicating loan price factors in the risk of poor post-transaction performance correctly.

This paper examines differences in the use of trade credit by publicly listed firms and their privately held counterparts. We show that public firms maintain a significantly lower level of trade credit than private firms. This finding is consistent with the argument that public firms rely less on supplier financing because of their greater access to cheaper and less risky sources of external capital. We further find that while public and private firms actively seek to adjust toward their optimal trade credit levels, the former firms experience faster adjustment. The recent financial crisis had differential effects on the trade credit ratios of public and private firms.

We study how investors respond to ‘superficial’ mutual-fund name changes that occur for no fundamental reasons. We find that such name changes remain widespread even after regulation to curb potentially misleading name changes (SEC Rule 35d-1). Superficial changes are more widespread than previously studied ‘misleading’ changes that are not accompanied by corresponding portfolio adjustments reflecting the investment style suggested by the new name. Superficial changes appear to be driven by managerial incentives. Investors react to superficial changes with increased fund flows but appear to gain no benefit through improved performance or lower fees. On the contrary, name-change funds underperform as a group. Our findings highlight inefficiencies in the mutual-fund market and hold important implications for the stakeholders involved.

India has the unique distinction of being the only country that releases information on the IPO bookbuilding process live to investors. Against this backdrop, we investigate the role this mechanism plays in generating investor interest during the bookbuilding process and the subsequent performance of IPOs in the immediate aftermarket. We show that, to retail investors, institutional bids in the early days of the bookbuilding process offer a coherent signal about the quality of the IPO. IPOs with high levels of institutional demand in the early days of the book also see high levels of bids from retail investors in the later days of the book. Large subscriptions have a strong positive effect on initial returns. Known certification mechanisms, such as the reputation of the sponsor, VC affiliation and IPO grading, are of limited importance in the Indian IPO market.

Venture capital (VC) cross-border syndication has increased significantly in recent years. This study examines the risk and returns of investments of US–European cross-border syndicates in US portfolio companies. We use a large sample of investments across four financing stages, and highlight several noteworthy differences between cross-border syndicates and previous US-only evidence. By comparison, US–European syndicates are larger than US-only syndicates, involve younger VCs, and focus more on later financing stages. Controlling for sample selection bias caused by the endogenous choices of exit route and exit timing, we examine the risk and returns of investments backed by cross-border syndicates. Consistent with evidence from US-only syndicates, alpha and beta decrease monotonically from the earliest (start-up) stage to the later stages of financing.

We use India's unique regulatory design to test sentiment-based models of IPO initial returns. Using a sample of 362 Indian offerings from 2003 to 2014, we find that the traditional measure of IPO underpricing averages 23%. We decompose the traditional underpricing measure into two components: one related to voluntary underpricing by the underwriter and the other component related to the IPO's first-day trading activity. We find minimal levels of voluntary underpricing. However, initial returns on the first day average 14% and are primarily driven by the unmet demand of non-institutional investor groups. Overall, our results support sentiment-based models of IPO initial returns.

We examine the determinants of an IPO firm's decision to trade on a when-issued market and find that better quality firms are more likely to trade on this market. Our ‘what-if’ analysis shows that for companies that choose to have when-issued trading, the actual offer price is almost 26% higher than it would have been had these firms chosen not to trade on this market. We interpret this higher offer price as a ‘rent’ that investors pay to acquire shares of such companies. We also show that the informational accuracy of the UK when-issued market is better than that of continental European when-issued markets.

Against the backdrop of a severe financial crisis and extensive restructuring of the financial sector, we investigate the evolution and determinants of connections between firms and banks, and the impact of bank connections on corporate investment. Our study examines Thai non-financial companies during 1995–2000, a period straddling the East Asian Financial Crisis of 1997–1998. Before the crisis, bank-connections are common and associated with significantly lower sensitivity of corporate investment to internal cash flow. After the crisis, and following substantial changes in bank ownership and governance due to financial-sector reforms and restructuring, far fewer firms are bank-connected, connections no longer affect investment–cash flow sensitivity, and investment decisions are more efficient in general.

This paper investigates whether shareholder lockup agreements in France and Germany mitigate problems of agency and asymmetric information. Despite minimum requirements in terms of the length and percentage of shares locked up, lockup agreements are not only highly diverse across firms but also across the different shareholders of a single firm as most firms have different agreements in place for executives, non-executives and venture capitalists. The diversity across firms and types of shareholders can be explained by firm characteristics—such as the level of uncertainty—as well as the type and importance of each shareholder within the firm.

Can companies reduce the volatility and increase the liquidity of their stocks by trading them? In the context of the Italian stock market, where companies have far more leeway to sell as well as buy their own stocks than in the U.S., the answer is yes. We examine the effects of trading (open-market share repurchases and treasury shares sales) on liquidity (bid-ask spread) and volatility (return variance). Further, we examine the impact of shareholder approvals of repurchase programs on liquidity and volatility. We find clear evidence that trading increases liquidity and reduces volatility. These results are consistent with our analysis of the motives Italian companies give for making share repurchases. © 2011 Elsevier B.V.

Does multinationality affect the initial public offering (IPO) performance of entrepreneurial firms? Theoretical arguments can be made for a positive effect of multinationality as well for a negative effect. We examine this question empirically by analyzing IPO data for 240 U.K. firms. We find that multinationality has significant and positive effects on long run IPO performance. This suggests that the market perceives entrepreneurial firms with multinational activities as possessing unique intangible assets that are indicative of future financial success. Factors affecting the IPO performance also differ systematically between firms with multinational operations and those without multinational operations. Stocks of intangible assets and the quality of the network significantly affect the performance of entrepreneurial IPO firms that “go global”. In contrast, domestic IPO firm performance is affected by offer size and underwriters’ perception of firm quality. The findings have important implications for entrepreneurial firms who are making decisions on “going global” and “going public”. This paper is forthcoming in Applied Financial Economics.

We analyze detailed monthly data on U.S. open market stock repurchases (OMRs) that recently became available following stricter disclosure requirements. We find evidence that OMRs are timed to benefit non-selling shareholders. We present evidence that the profits to companies from timing repurchases are significantly related to ownership structure. Institutional ownership reduces companies' opportunities to repurchase stock at bargain prices. At low levels, insider ownership increases timing profits and at high levels it reduces them. Stock liquidity increases profits from timing OMRs.

IPOs on the EuroNMs have shown very high underpricing.The majority of these IPOs possess specific characteristics such as lock-up agreements, venture-capital financing, ownership by the underwriter and over-allotment options.We study how these characteristics influence the underpricing of firms listed on the two largest EuroNM stock exchanges, the Neuer Markt of Germany and the Nouveau Marche of France.We find that the high underpricing in these two markets contrary to the evidence on the US - is not driven by insiders selling behaviour.However, the large underpricing is caused by the high degree of riskiness of the issuing firms and by the partial adjustment phenomenon of offer prices to compensate institutional investors for the truthful revelation of their demand for the shares.In contrast, venture-capital involvement does not affect underpricing.For France, lock-up agreements act as substitutes to underpricing, but not so for Germany.We also explore the reasons for the large difference in underpricing between the German and the French IPOs: German firms are more underpriced because they are more risky, have larger price revisions, have less stringent VC lock-up contracts and mostly go public during the hot issue period of 1999-2000 when the general level of underpricing in all IPO markets is substantially higher.

The short run underpricing of initial public offerings (IPOs) is one of the best documented anomalies in finance. The Rock model explains this anomaly in terms of horizontal information asymmetry amongst investors. In this paper we use a comprehensive IPO data from the UK main market for the period 1989-96 to test the Rock model against several other alternatives. We propose that horizontal information asymmetry should be smaller for investment trust IPOs as compared to conventional issuing companies. The Rock model then predicts that investment trust IPOs should display less underpricing than conventional issuing companies. Our findings support the Rock model and are consistent with previous studies of investment trust IPOs. A revised version of this paper has appeared: Applied Financial Economics, vol.12(10), pp.697-706, 2002.

This paper examines the investment preferences of foreign institutional investors investing in the U.S. market. We analyse both firm and country-level determinants that influence the foreign institutional investors' allocation choices. At the country level, we find that the governance quality in a foreign institutional investor's home country is a determinant of their decision to invest in the U.S. market. Our findings indicate that investors who come from countries with governance setups similar to that of the U.S. invest more in the United States. The investment levels though, are more pronounced for countries with governance setups just below that of the U.S. Our results are consistent with both the ‘flight to quality’ and ‘familiarity’ arguments, and help reconcile prior contradictory empirical evidence. At the firm level, we present unequivocal evidence in favour of the familiarity argument. Foreign institutional investors domiciled in countries with high governance quality prefer to invest in U.S. firms with high corporate governance quality. This effect is primarily driven by grey (non-monitoring) institutional investors.