“Stock Market Manipulation and Corporate Venture Capital Investments”, with Douglas Cumming and Yimeng Yu, 2023
Abstract: We investigate the relationship between corporate venture capital (CVC) and market manipulation for NASDAQ and NYSE-listed companies. Compared to non-CVC firms, those with CVCs show 16% fewer manipulations on average. However, CVC investments in entrepreneurial firms are followed by a rise in market manipulation in the short run (around 6 months), but a decline thereafter. Stock manipulation harms the ability of CVCs to form investment syndicates and reduces the likelihood of successful IPO and acquisition exits. The hazard rate to IPO is 0.54 for CVC-backed firms that face market manipulation.
“Institutional Ownership and Corporate Venture Capital Investment Decisions”, with Sofia Johan, 2022
Abstract: This paper investigates the impact of institutional ownership and the heterogeneity among institutional investors on firms' Corporate Venture Capital (CVC) investment decisions and outcomes. The research uncovers an inverse U-shaped relationship between institutional ownership and CVC investments. Minority institutional ownership is shown to promote more exploratory investments in CVC, alleviating concerns of institutional "short-termism" and fostering autonomy in CVC management. However, when institutional investors become the majority, their influence turns negative, discouraging riskier CVC investments through tighter oversight aimed at mitigating managerial opportunism. The study further distinguishes between short-term and long-term risk-averse institutional investors, revealing that they discourage investments in early-stage projects while promoting later-stage projects. Additionally, a higher ownership stake by long-term institutional investors positively correlates with the likelihood of an IPO exit for investee companies. The findings underscore that institutional investor heterogeneity shapes their engagement level, risk-taking behavior, and impact on CVC outcomes, driven by differences in their investment horizons, objectives, risk policies, and available resources.
“The Anatomy of Zombie Firms: Unpacking the Role of Investment Efficiency” Working paper, sole author, 2021
Abstract: The paper explores the relationship between corporate investment efficiency and the emergence of zombie firms. It indicates that zombie firms have lower investment efficiency and have significant positive effects on the sensitivity of investment to cash flow and Q when the firm is in overinvestment. In cases of underinvestment, the opposite trend is observed: negative sensitivity between investment and both cash flow and Q. The low investment efficiency in zombie firms suggests managerial failures in capital allocation, leading to suboptimal productivity and performance. The research also unveils that such firms show greater sensitivity between investment and cash flow when faced with financial constraints, and even more so when their corporate governance is weak. These findings challenge the notion that the rise of zombie firms is merely episodic or primarily triggered by abrupt financial upheavals. Instead, they highlight that zombie firms are a distinct category plagued by ineffective financing and managerial practices, contributing to their low investment efficiency.
“The Influence of Analyst Forecasts on Mutual Fund Portfolio Selection and Performance,” Working paper, 2021.
Abstract: This study investigates the influence of analyst coverage on the portfolio selection and performance outcomes of mutual funds. The research reveals that fund managers place significant value on the insights provided by analyst forecasts and recommendations in guiding their investment choices. Specifically, the data shows that mutual funds are more likely to allocate higher weights to securities with consistent and accurate analyst recommendations. Such a strategy is linked to lower idiosyncratic risks and superior performance compared to portfolios that disregard this analytical input. The findings also suggest that the prime objective for mutual fund managers may not solely be chasing excess returns, but also minimizing idiosyncratic risk. Furthermore, the study highlights that analyst research not only adds value by influencing asset prices but also allows fund managers to reduce operating expenses effectively. Overall, the paper posits that following analyst coverage can be a strategic asset in the portfolio management process for mutual funds.