Social and Behavioral Sciences Commons^™

Learning From Manipulable Signals, Mehmet Ekmekci, Leandrro Gorno, Lucas Maestri, Jian Sun, Dong Wei

Research Collection Lee Kong Chian School Of Business

We study a dynamic stopping game between a principal and an agent. The agent is privately informed about his type. The principal learns about the agent’s type from a noisy performance measure, which can be manipulated by the agent via a costly and hidden action. We fully characterize the unique Markov equilibrium of this game. We find that terminations/ market crashes are often preceded by a spike in (expected) performance. Our model also predicts that, due to endogenous signal manipulation, too much transparency can inhibit learning. As the players get arbitrarily patient, the principal elicits no useful information from the …

The Role Of Data For Ai Startup Growth, James Bessen, Stephen Michael Impink, Lydia Reichensperger, Robert Seamans

Faculty Scholarship

Artificial intelligence (“AI”)-enabled products are expected to drive economic growth. Training data are important for firms developing AI-enabled products; without training data, firms cannot develop or refine their algorithms. This is particularly the case for AI startups developing new algorithms and products. However, there is no consensus in the literature on which aspects of training data are most important. Using unique survey data of AI startups, we find that startups with access to proprietary training data are more likely to acquire venture capital funding.

Essays On Firm Productivity And Innovation, Won Sung

Legacy Theses & Dissertations (2009 - 2024)

Firms’ productivity gain and technological innovation have been vital to ensure a country’s long-term economic growth and competitive advantage. This dissertation focuses mainly on drivers and barriers nurturing to firms’ productivity gains and innovative activities to suggest policy implications. The first essay examines the impacts of inventor mobility in value creation in mergers and acquisitions (M&As). We employ a two-sided matching model for acquirers and targets that allows them to choose whom to merge with. Applying this model, we examine how inventor mobility affects value creation in M&As in the manufacturing sector. Inventors exchanged between inventing firms have been interpreted …

Female Perspectives On Entrepreneurship And Research How Diverse Perspectives Inspire Creativity, Drive Innovation, And Encourage Inclusive Economic Growth, Clovia Hamilton, Elizabeth Dougherty, Amanda Elam, Pamela J. Kalbfleisch, Siri P. Terjesen, Jennifer L. Woolley

Technology & Society Faculty Publications

Diverse and varied perspectives are not only central to our institutional mission, but are essential to our society, as we hope to create a more inclusive, more sustainable and ultimately brighter world. Diverse perspectives and collaboration between different institutions, fields and industries must become the norm. This is the program and proceeding of Stony Brook University's colloquium on female perspectives on entrepreneurship and research and how diverse perspectives inspire creativity, drive innovation, and encourage inclusive economic growth. This was a much-needed discussion in January 2022 that's important for the development of entrepreneurship and research worldwide. At Stony Brook University, the …

Private Equity And Venture Capital In Sport: Who Is Receiving Funding And What Factors Influence Funding, Timothy Koba

The Journal of Entrepreneurial Finance

Small business survival is paramount to the vibrant business community in the United States with over 400,000 new business created annually. While the cost of starting a business can vary, the necessity of access to available capital is vital for growth. As an industry, sport comprises several sectors of the economy with little understanding of the private equity market that exists for funding of these businesses. This paper investigates the $9.2 Billion private equity marketplace for sport, fitness and athletic businesses in the United States between 2010 and 2020. The results of the study demonstrate the importance of revenue and …

Venture Capital In Nevada, Peter Grema, Caitlin J. Saladino, William E. Brown Jr.

Economic Development & Workforce

This fact sheet provides an overview of venture capital in the State of Nevada. Venture capital is an essential part of economic diversification and business startup development. The Mountain West states of Arizona, Colorado, New Mexico, and Utah are used for comparative purposes to add context to Nevada’s venture capital ecosystem. The differing nature of venture capital funds in Northern and Southern Nevada is delineated.

Hedge Fund Investment In Initial Coin Offerings (Icos), Adam B. Wing

Honors Undergraduate Theses

Initial Coin Offerings (ICOs) came into worldwide attention in 2018, when over $11.6 billion flowed through them. The CME Group launched Bitcoin futures contracts in December 2017, giving large funds their first regulated exposure to digital assets. As digital assets move towards the mainstream of finance, institutional investors have followed. This study comparatively analyzes Hedge Fund investment in digital assets against that of other institutional investment firm types (Private Equity and Venture Capital) by analyzing their crypto holdings and rebuilding an equally weighted portfolio for each fund. Under these conditions, the study succeeds in finding significant differences between hedge fund …

Private Company Lies, Elizabeth Pollman

All Faculty Scholarship

Rule 10b-5’s antifraud catch-all is one of the most consequential pieces of American administrative law and most highly developed areas of judicially-created federal law. Although the rule broadly prohibits securities fraud in both public and private company stock, the vast majority of jurisprudence, and the voluminous academic literature that accompanies it, has developed through a public company lens.

This Article illuminates how the explosive growth of private markets has left huge portions of U.S. capital markets with relatively light securities fraud scrutiny and enforcement. Some of the largest private companies by valuation grow in an environment of extreme information asymmetry …

Coin-Operated Capitalism, Shaanan Cohney, David A. Hoffman, Jeremy Sklaroff, David A. Wishnick

All Faculty Scholarship

This Article presents the legal literature’s first detailed analysis of the inner workings of Initial Coin Offerings. We characterize the ICO as an example of financial innovation, placing it in kinship with venture capital contracting, asset securitization, and (obviously) the IPO. We also take the form seriously as an example of technological innovation, where promoters are beginning to effectuate their promises to investors through computer code, rather than traditional contract. To understand the dynamics of this shift, we first collect contracts, “white papers,” and other contract-like documents for the fifty top-grossing ICOs of 2017. We then analyze how such projects’ …

Startup Governance, Elizabeth Pollman

All Faculty Scholarship

Although previously considered rare, over three hundred startups have reached valuations over a billion dollars. Thousands of smaller startups aim to follow in their paths. Despite the enormous social and economic impact of venture-backed startups, their internal governance receives scant scholarly attention. Longstanding theories of corporate ownership and governance do not capture the special features of startups. They can grow large with ownership shared by diverse participants, and they face issues that do not fit the dominant principal-agent paradigm of public corporations or the classic narrative of controlling shareholders in closely held corporations.

This Article offers an original, comprehensive framework …

Pension Fund Evictions: Lessons For Housing And Labor, Marnie F. Brady

Dissertations, Theses, and Capstone Projects

In this dissertation I analyze an institutional investor portfolio of over-leveraged multifamily rental housing in East Palo Alto, California to demonstrate how changing forms of landlordism produce both new and familiar targets for tenants organizing against displacement and for housing security. Venture capital investors in the first decade of the 2000s exploited the Silicon Valley regional conditions of racial exclusion, uneven development, and municipal rent control. I introduce the legacy of Black political organization in East Palo Alto as a way of contextualizing the tenants’ and the city leaders’ response to the monopoly investment purchase. The structure of this rental …

Prosperity In The On-Demand Economy: Reinvigorating The American Labor Force, Ziya Mehmet Smallens

Honors Papers

In the 21st century, the American labor market is best defined by instability. Since the 1970s, more and more Americans have been forced into precarious work arrangements that fail to ensure job security, livable wage-rates, or employee satisfaction. A dark cloud swirls around the labor market in the form of contingent work. Contingent workers are not guaranteed the same protections and securities as traditional employees. Firms revel in an employment landscape that allows them to deploy and terminate workers with ease. Contingent work has carved its own position in the economy in the form of the Gig economy. The Gig …

Do Venture Capitalists Play A Monitoring Role In An Emerging Market: Evidence From The Pay-Performance Relationship Of Chinese Entrepreneurial Firms?, Jerry X. Cao, Qigui Liu, Gary G. Tian

Research Collection Lee Kong Chian School Of Business

This paper investigates venture capitalists’ monitoring of managerial behaviour by examining their impact on CEO pay-performance sensitivity across various controlling structures in Chinese firms. We find that the effectiveness of venture capitalists' monitoring depends on different types of agency conflict. In particular, we find that venture capital (VC) monitoring is hampered in firms that experience severe controlling-minority agency problems caused by disproportionate ownership structures. We provide further evidence that VC is more likely to exert close monitoring in firms that have greater managerial agency conflict, and thus require more direct monitoring. However, controlling-minority agency problems have a greater impact on …

From Founders To Firm: Examining The Retention Of Founder-Ceo Social Capital In Venture-Backed Firms, Bret R. Fund

The Journal of Entrepreneurial Finance

This paper examines how organizations protect themselves from the negative social and economic consequences associated with the loss of a key member and their social capital. Drawing on the social capital and upper echelons literatures, the author(s) hypothesize that social capital can be institutionalized. The corresponding hypotheses are tested on a sample of 125 venture-backed software firms and the results demonstrate that the institutionalization of a founder-CEO’s social capital leads to better performance for a firm. The results provide a basis for understanding how social mechanisms influence economic organization as well as succession and compensation in a new venture context.

Attracting Fdi: The Chilean Government's Role Promoting Renewable Energy, Kyle Herman

Dr. Kyle S. Herman

The development and implementation of renewable energy power plants is important for Chile in order to increase energy security, supply remote mines with electricity, and eventually decrease energy costs. The Chilean government has promoted renewable energy and attracted Foreign Direct Investment (FDI) to develop large-scale renewable energy projects. However, the policies cannot sufficiently attract FDI in unproven renewable energies such as Concentrated Solar Power, though it is proven elsewhere. This paper examines the Chilean government’s renewable energy policies, related government agencies, and the extent that these provide a stable backdrop for FDI in large-scale renewable energy projects. Following that summary, …

Contextualizing The Categorical Imperative: Category Linkages, Technology Focus, And Resource Acquisition In Nanotechnology Entrepreneurship, Michael Lounsbury, Tyler Wry

michael lounsbury

This paper examines the role of category affiliations in entrepreneurial resource acquisition. Pace existing studies, we suggest category spanning will cause firms to be overlooked or discounted because evaluators assume that they have less expertise than their category-focused competitors; a phenomenon known as the ‘categorical imperative’. We suggest, however, that categories can be related both vertically and horizontally, and that this has important implications for understanding how the actors that span between them are evaluated. Studying startup ventures in nanotube technology,we showthat venture capital investments were affected by a firm's position across patent classes that were related at both of …

Battle For Control: How Venture Capitalists Affect The Development Of Businesses, Jeffery Neil Wacaster

Honors Theses

In my new podcast series, I interview business leaders to determine the affect of venture capital on the entrepreneur. First, I interview a serial startup entrepreneur to find out the true nature of venture capital, how to go about getting it, and how it affects the creative process. Next, I interview a blogger who thinks that venture capital can be very detrimental to business startups, and get his perspective on related issues.

The interviewees:

1. Michah Baldiwn a) current CEO of Grahic.ly b) He and his team have raised over $350 million dollars of startup money

2. Peter Ireland a) …

Emergent Geographies In Green Energy, Sean Tierney

Electronic Theses and Dissertations

A consensus on climate change is spurring an energy transition, but the geography of this transition is uneven and this paper evaluates the energy landscape globally, in the United States and in Colorado. Developed countries have taken the lead in installations and of next generation energy technology ownership. Green electricity has still not achieved parity with fossil fuels, which puts their adoption in the hands of policy makers who are trying to spur innovation with minimal financial disruption. Yet the future of green electricity is in question due to weak and fragmented policy regimes, but also because of inadequate R&D …

Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson

Cowles Foundation Discussion Papers

We examine a repeated interaction between an agent, who undertakes experiments, and a principal who provides the requisite funding for these experiments. The repeated interaction gives rise to a dynamic agency cost — the more lucrative is the agent’s stream of future rents following a failure, the more costly are current incentives for the agent, giving the principal an incentive to reduce the continuation value of the project. We characterize the set of recursive Markov equilibria. We show that there are non-Markov equilibria that make the principal better off than the recursive Markov equilibrium, and that may make both players …

Venture Capital And Sequential Investments, Dirk Bergemann, Ulrich Hege, Liang Peng

Cowles Foundation Discussion Papers

We present a dynamic model of venture capital financing, described as a sequential investment problem with uncertain outcome. Each venture has a critical, but unknown threshold beyond which it cannot progress. If the threshold is reached before the completion of the project, then the project fails, otherwise it succeeds. The investors decide sequentially about the speed of the investment and the optimal path of staged investments. We derive the dynamically optimal funding policy in response to the arrival of information during the development of the venture. We develop three types of predictions from our theoretical model and test these predictions …

Venture Capital And Sequential Investments, Dirk Bergemann, Ulrich Hege, Liang Peng

Cowles Foundation Discussion Papers

We present a dynamic model of venture capital financing, described as a sequential investment problem with uncertain outcome. Each venture has a critical, but unknown threshold beyond which it cannot progress. If the threshold is reached before the completion of the project, then the project fails, otherwise it succeeds. The investors decide sequentially about the speed of the investment and the optimal path of staged investments. We derive the dynamically optimal funding policy in response to the arrival of information during the development of the venture. We develop three types of predictions from our theoretical model and test these predictions …

Independent Directors And Board Control In Venture Finance, Brian Broughman

Brian Broughman

The financial contracting literature treats control as an indivisible right held either by a firm’s entrepreneurs or by its investors. In contrast, data from VC-backed firms shows that board control is typically shared, with a third-party independent director holding the tie-breaking board seat (‘ID-arbitration’). In this article I use a bargaining game similar to final offer arbitration to model a firm’s choice of action under ID-arbitration. I show that ID-arbitration can reduce holdup by moderating each party’s ex post threat position. Consequently, ID-arbitration can lead to the efficient outcome in circumstances where alternative governance arrangements – entrepreneur control, investor control, …

The Missing Preferred Return, Victor Fleischer

ExpressO

Managers of buyout funds typically offer their investors an 8% preferred return on their investment before they take a share of any additional profits. Venture capitalists, on the other hand, rarely offer a preferred return. Instead, VCs take their cut from the first dollar of nominal profits. This disparity between venture funds and buyout funds is especially striking because the contracts that determine fund organization and compensation are otherwise very similar. The missing preferred return might suggest that agency costs pose a larger problem in venture capital than previously thought. Is the missing preferred return evidence, perhaps, that VCs are …

The Relationship Between Governance Structure And Risk Management Approaches In Japanese Venture Capital Firms, Toru Yoshikawa, Phillip H. Phan, Jonathan Linton

Research Collection Lee Kong Chian School Of Business

This paper attempts to understand what drives Japanese venture capital (JVC) fund managers to select either active managerial monitoring or portfolio diversification to manage their firms' investment risks [J. Bus. Venturing 4 (1989) 231]. Unlike U.S. venture capitalists that use active managerial monitoring to gain private information in order to maximize returns [J. Finance 50 (1995) 301], JVCs have traditionally used portfolio diversification to attenuate investment risks [Hamada, Y., 2001. Nihon no Bencha Kyapitaru no Genkyo (Current State of Japanese Venture Capital), Nihon Bencha Gakkai VC Seminar, May 7]. We found that performance pay is positively related to active monitoring …

Re-Examining Venture Capitalist Certification And Insider Selling Decisions During The 1990s., Nicholas S. Koshiw

University Avenue Undergraduate Journal of Economics

This paper addresses the validity of certification and insider selling hypotheses within the context of new issues. Comparisons of venture capital backed and non venture-backed issues with similar offering characteristics show that issuers with venture capital affiliation are more underpriced than non venture-backed IPOs and insider selling results in decreased underpricing. These results contradict the findings of previous venture capital certification studies {Barry (1990), Megginson and Weiss (1991), and Lin and Smith (1997)}, but are consistent with recent work that examines grandstanding {Lee and Wahal (2002)} and insider selling decisions during hot market periods {Ljungqvist and Wilhelm (2003)}.

Venture Capital And Economic Growth: An Industry Overview And Singapore's Experience, Francis Koh, Winston T. H. Koh

Research Collection School Of Economics

This paper provides an overview of the venture capital industry, and its development in Asia and Singapore. Venture capital plays an important role in innovation and economic growth. Indeed, the resurgence of the United States as a technology leader is intimately linked to the success of Silicon Valley. As Singapore enters the next phase of economic development, the creation of internal engines of growth is an urgent task. The Singapore government has done much to provide an environment for entrepreneurship to thrive. Its success at replicating the Silicon Valley culture will be important for Singapore’s future economic success.

Venture Capital And Economic Growth: An Industry Overview And Singapore's Experience, Francis Koh, Winston T. H. Koh

Research Collection Lee Kong Chian School Of Business

This paper provides an overview of the venture capital industry, and its development in Asia and Singapore. Venture capital plays an important role in innovation and economic growth. Indeed, the resurgence of the United States as a technology leader is intimately linked to the success of Silicon Valley. As Singapore enters the next phase of economic development, the creation of internal engines of growth is an urgent task. The Singapore government has done much to provide an environment for entrepreneurship to thrive. Its success at replicating the Silicon Valley culture will be important for Singapore's future economic success.

Role Of Venture Capital Financing In Inflating The Technology Stock Market Bubble, Jessica Rosenbloom

Honors Theses

Comprising nearly one-third of the nation's gross domestic product from 1995 to 1999, the growth of the Information Technology industry took a backseat to dot.com mania. Its companies, however, were just as influential in creating the stock market bubble. Characterized by high technology, high research and development, high profits, and high risk, the Information Technology industry had always been attractive to venture capital investors. This study will find that a Telecommunications Deregulation Act passed in 1996, in conjunction with an eight percent capital gains tax cut in 1997, flooded venture capitalists with business plans pertaining to the Information Technology industry. …

The Financing Of Innovation: Learning And Stopping, Dirk Bergemann, Ulrich Hege

Cowles Foundation Discussion Papers

This paper considers the financing of a research project under uncertainty about the time of completion and the probability of eventual success. The uncertainty about future success gradually diminishes with the arrival of addtional funding. The entrepreneur controls the funds and can divert them. We distinguish between relationship financing, meaning that the entrepreneur’s allocation of the funds is observable, and arm’s length financing, where it is unobservable. We find that equilibrium funding stops altogether too early relative to the efficient stopping time in both financing modes. We characterize the optimal contracts and equilibrium funding decisions. The financial constraints will typically …

The Financing Of Innovation: Learning And Stopping, Dirk Bergemann, Ulrich Hege

Cowles Foundation Discussion Papers

This paper considers the financing of a research project under uncertainty about the time of completion and the probability of eventual success. We distinguish between two financing modes, namely relationship financing, where the allocation decision of the entrepreneur is observable, and arm’s length financing, where it is unobservable. We find that equilibrium funding stops altogether too early relative to the efficient stopping time in both financing modes. The rate at which funding is released becomes tighter over time under relationship financing, and looser under arm’s length financing. The trade-off in the choice of financing modes is between lack of commitment …