Research

WORKING PAPERS

1. The Value-Add of Venture Capital Due-diligence Information Frictions, Startup Growth and Failed Fundraising Campaign, with Juanita Gonzalez-Uribe, Robyn Klingler-Vidra and Xiang Yin (2023) 

Video 

Semi-Finalist FMA Conference Best Paper Award 2022, Winner of the Industrial Securities Excellent Paper Award(China Accounting and Finance Academic Annual Conference), Winner of the Best Paper Using Corporate Data Supplied by the Bureau van Dijk (2022 Australasian Finance and Banking Conference)

We examine the value added by venture capital investors during the due-diligence process. We use data from a seed fund that quasi-randomly assigns applicants to due diligence, creating a natural experiment. We find that due-diligence assignment leads to higher average growth, even for companies rejected for investment by the fund. However, the effect on growth is concentrated on the upper quantiles of the growth distribution while business discontinuation increases. These results suggest that venture capital due diligence can mitigate entrepreneurial capability constraints in determining whether and how to expand promising ideas and shut down unproductive businesses.

2. The Effect of Home Ownership on Consumption: Evidence from Housing Lotteries in China, with Yiqing Lü  (2022)

This paper studies the impact of homeownership on consumption. We exploit a quasi-natural experiment of housing lotteries that randomize individuals’ eligibility to buy newly-built residential housing in China. Using bankcard transaction data, we find that compared to nonhome buyers within the same lottery, homebuyers decrease total expenditure, especially on nondurable goods, in one month after the lottery. In contrast, homebuyers spend relatively more on home-related durable goods in one year after the lottery. The short-term decline in consumption is stronger for lotteries with higher down payments and lower winning likelihoods. We supplement our analysis with an event study that investigates homebuyers in lotteries that attract fewer participants than homes up for sale and find similar results. Our finding suggests a commitment channel and a wealth channel of home ownership on consumption.

3. The Real Effects of Small-Firm Credit Guarantees During Recessions, with Juanita Gonzalez-Uribe (2022) 

Media Coverage:  Voxeu; LSE Business Review

Semi-Finalist FMA Conference Best Paper Award 2020

We estimate the real effects of UK guarantees introduced during 2009 by exploiting firm-size eligibility restrictions and rich administrative data. Relative to matched non-eligible firms, eligible businesses had higher 5-year debt and performance, yet similar repayment and interest rates. Employment, wages, and productivity also increased, yet there was no impact on pledgeable asset investment, even for capital-dependent firms. The evidence suggests that the guarantees relaxed credit constraints by enabling firms to access loans they could not obtain otherwise at any rate, especially for financing workers. We find no evidence supporting other mechanisms like debt-cost decreases, changes in incentives, or externalities. 

4. Young Firm Manager Turnover and Performance  (2022)

This paper investigates the impact of senior manager turnover on the performance of startup firms. Using a novel manager-shareholder matched dataset of young firms in the UK, I exploit shocks to managers’ outside options induced by an area-based policy in support of local businesses. For identification, I compare firms with different ex-ante manager departure likelihoods and different distances to policy regions. I find that senior manager departure has a significant negative impact on young firm performance, suggesting substantial replacement frictions in replacing important managerial human capital. Tentative evidence suggests founder-manager’s private benefit of control and “tight link” with their ventures. 

5. Is Blood Thicker than Water? Manager Turnover in Family Firms (2022) 

Media coverage: RES Media Briefings, LSE Business Review

This paper examines how the succession decisions in family firms are affected by the product market competition based on a sample of UK family  firms in the manufacturing sector. Using import penetration to measure foreign competition and implementing the import-weighted exchange rate index as an instrumental variable, I find that intense foreign competition causes a significant increase in family manager departures. Specifically, departing family managers are unlikely to be replaced, whereas departing unrelated managers are more often replaced by unrelated managers.

PUBLICATIONS

1. A Robust Test for Weak Instruments in Stata, with Carolin Pflueger, Stata Journal, 2015, 15(1):216-225. 

The Stata module WEAKIVTEST implements the weak instrument test of Montiel Olea and Pflueger (Journal of Business and Economic Statistics, 2013) that is robust to heteroskedasticity, serial correlation, and clustering. This module should be installed from within Stata by typing "ssc install weakivtest".

Note: This module was previously circulated as IVROBUST.

2. Predicting New Firm Survival and Growth: The Power of Alternative Data , forthcoming at Economic and Political Studies

This paper demonstrates that the alternative data on manager turnover can provide investors and policymakers with a timely and available predictor of new firm performance beyond traditional financial information. I construct comprehensive alternative data on manager turnover that covers a near-population sample of new firms in the UK. I show that manager departure and appointment predict new firms’ survival and growth, even after controlling for firm financials. Besides the within-firm prediction, the average manager turnover in other firms of the same industry can cross-predict individual firm performance. The findings are more pronounced in non-family firms, smaller firms, younger firms, and firms incorporated in the Great Recession. This paper sheds light on the power of alternative data in the prediction of firm performance, particularly in new firms that often do not have available information.