Alma mater matters: The value of school ties in the venture capital industry. This paper examines the role and estimates the economic value of social networks tied to academic institutions in the venture capital industry. I show that having a shared academic background increases the likelihood of matching between entrepreneurs and venture capitalists by 57%. Similarly, a shared academic background increases the likelihood of matching between different venture capitalists by 42% when they syndicate portfolio company investments. Finally, a shared academic background improves portfolio company performance. For example, when an entrepreneur and a venture capitalist attended the same Top 3 academic institution, the likelihood that the investment will result in an initial public offering or acquisition increases by 42%. This is the incremental effect of having attended the same Top 3 academic institution. Taken together, these results provide strong evidence that shared academic backgrounds help reduce information gaps in the venture capital industry. Unveiling the secrets of the academy: Alumni networks and university endowment success. This paper shows that when university endowments become limited partners with venture capital firms, the performance of their connected portfolio companies improve relative to non-connected ones. Portfolio companies are connected when any of their entrepreneurs attended the corresponding universities for undergraduateor graduate studies. In a differences-in-differences design I compare initial public offering rates between connected- and non-connected venture capital investments in a treated- and an untreated cohort and estimate this effect to be 6%. Since the unconditional sample mean of initial public offerings is 10%, this is commensurate to a 60% increase in the unconditional initial public offering probability. This effect consists of two separate and potentially different effects, however. First, the effect of obtain a new university endowment as a limited partner, second, the effect of losing an already existing university endowment as a limited partner. Further analysis shows that the main effect is mostly driven by the latter. These results continue to hold in a rich set of robustness checks. Goldrush Dynamics of Private Equity. We present a simple dynamic model of entry and exit in a private equity market with heterogeneous fund managers, a depletable stock of target companies, and learning about investment profitability. Its predictions match a number of stylized facts: Aggregate fund activity follows waves with endogenous transitions from booms to busts. Supply and demand in the private equity market are inelastic, and the supply comoves with investment valuations. High industry performance precedes high entry, which in turn precedes low industry performance. Differences in fund performance are persistent, firsttime funds underperform the industry, and the first-time funds that are raised in boom periods are unlikely to be succeeded by follow-on funds. Fund performance and fund size are positively correlated across private equity firms, but negatively correlated across consecutive funds by the same firm. Finally, boom periods can make ”too much capital chase too few deals”. Ownership Matters: A Clinical Study of Investor Activism. This paper studies the involvement and engagement objectives of an activist investor in an institutional environment characterized by concentrated ownership. It highlights the heterogeneity of the investor’s activism and its focus on operational improvements. It emphasizes the ownership structure of the portfolio companies as important determinants of investor activism. Using a carefully selected set of peer companies, it is possible to show that the investor targets undervalued companies with operational slack that maintain open ownership structures. In particular, by avoiding to invest in companies with other active owners, e.g. families and industrial owners, and seeking to invest in companies with more institutional holdings, the investor ensures that there is not only scope for improvements. There is also a reasonable chance of exercising control. / <p>Diss. Stockholm : Handelshögskolan, 2010. Sammanfattning jämte 4 uppsatser.</p>

This dissertation consists of two empirical essays. The first chapter titled: “Hedge Fund Activism and Dual Ownership of U.S. Multinationals”. Harford, Wang & Zhang (2017) conclude that holding high cash balances abroad to avoid US taxes causes internal capital markets and investments distortions. We posit that hedge funds target MNCs with more severe internal capital and agency problems. We demonstrate that upon acquiring dual ownership in these firms, hedge funds reduce internal capital problems and improve investment, especially innovation, efficiencies. To further reduce agency costs of foreign cash holdings, hedge funds engage dual firms in focused acquisitions. These improvements are reflected in superior performances of dual firms relative to non-dual firms. Chapter 2 titled as “Innovation Strategies & IPO Underpricing”. In this chapter, we investigate how a firms’ choice of pre-IPO innovation strategies affect IPO pricing. We differentiate the orientation of the issuing firm’s innovation portfolio in terms of exploitative orientation versus explorative orientation based on citations of patents across technology classes. We introduce a measure of innovation power to generate breakthrough innovations. We show that the issuing firms with greater innovation power, especially firms with exploratory orientation of a patent, significantly decrease underpricing and have the power to bargain a higher offer price. Our results suggest that a higher exploration strategy requires more time to negotiate a higher offer price while more valuable innovation requires less time to bargain at the higher offer price.

Corporate governance practice differs regionally and nationally, depending on how each legal environment protects minority investors, capital markets and company ownership structure. Governance can also change spectacularly in regions or countries with comparatively high levels of institutional investment. The notion of institutional investors' activism is increasingly important in developed markets as the ideal corporate governance mechanism to monitor corporate managers and overcome agency problems arising from dispersed corporate ownership in modern companies. These institutions can work together on an improved corporate governance framework more effectively than individual investors, monitoring corporate controllers of listed companies in emerging and developing markets, using their influence more vigorously and in ways more fitting to a concentrated ownership environment such as that in Saudi Arabia. Consequently, the role of institutional investors in emerging and developing markets will depend strongly on institutional investors' activism and the arrangements determined and undertaken by the corporate governance regulatory framework in these markets. In considering the influential role of institutional investors to improve corporate governance practice, a high level of minority shareholder protection thus remains an indicator of good corporate governance and regulatory pressure of rights and incentives, which are necessary to empower non-controlling shareholders in these concentrated ownership markets to exert a strong activist influence in monitoring corporate activities, thus improving the corporate governance practices of investee companies. In this context, this thesis contends that in Saudi Arabia in particular, shareholder involvement in corporate governance is inadequate, as a result of a variety of economic and regulatory obstacles. It goes on to identify what improvements are necessary and where, to ensure a sound framework for effective institutional investor activism and to improve the level of minority shareholder protection. It also cautions Saudi legislators against erecting hurdles to the future engagement of Saudi and foreign institutional investors in monitoring corporate activities which may affect the conditions for access, allocation and monitoring of equity, which is so important for value creation and sustainable economic growth. The main benefit to be derived from this research is that it facilitates a fuller understanding of the Saudi approach to corporate governance, the corporate ownership environment and trends in the capital market. The analysis also deepens knowledge of corporate governance regimes, including the role of institutional investors, and of their characteristics and investment behaviours. In short, it considers whether institutional investors are willing or have been encouraged to use their power to engage in the companies in which they invest and whether they are qualified to solve the agency problem.