My research focuses on 4 main topics: entrepreneurship, innovation, private equity and public policy.

Dissecting the Effect of Financial Constraints on Small Firms (joint with Su Wang) – 2019

Abstract: We use the Great Recession as a laboratory to dissect the implications of financial constraints in small firms. We exploit firm-level eligibility requirements for a credit guarantee scheme launched in the UK in 2009 as an exogenous determinant of financial access during the crisis. Using a difference-in-difference methodology, and novel small-firm data, we show that eligible firms relatively increased their borrowing, employment, sales, profits, and survival, but disinvested as much as non-eligible businesses. The results show that employment can be more sensitive to financial constraints than fixed assets, likely because fixed assets can be pledged as collateral whereas employees cannot.

Identifying and Impacting “Gazelles”: Evidence from a Business Accelerator – 2019

Review and Resubmit Journal of Financial Economics

New Evidence on Venture Debt (joint with William Mann) – 2018

One fundamental, long-standing pattern in the funding of early-stage companies has been the use of equity-style investments by venture capitalists (VCs). As a result, the perception has been that debt contracts are a negligible component of the funding picture for VC-backed companies. This is often justified with the observation that startups do not feature the characteristics that traditionally support debt financing, such as significant free cash flow, tangible collateral, or reputation.

The Effects of Business Accelerators on Venture Performance: Evidence from Start-up Chile (joint with Michael Leatherbee) – 2017

Do business accelerators affect new venture performance? We investigate this question in the context of Start-Up Chile, an ecosystem accelerator. We focus on two treatment conditions typically found in business accelerators: basic services of funding and coworking space, and additional entrepreneurship schooling. Using a regression discontinuity design, we show that schooling bundled with basic services can significantly increase new venture performance. In contrast, we find no evidence that basic services affect performance on their own. Our results are most relevant for ecosystem accelerators that attract young and early-stage businesses and suggest that entrepreneurial capital matters in new ventures.

CEO Contract Horizon and Innovation (joint with Moqi Groen-Xu) – 2016

Innovating firms face a dilemma when setting contractual terms for management. Competing theories make opposing predictions on the relationship between contract-duration and innovation. Using novel data, we estimate that an additional year of CEO-contract-duration leads to 6.5% higher-quality innovation. We support a causal interpretation by exploiting exogenous variation spurred by CEO contract-limits regulation. Our evidence illustrates the process of changing innovation quality. Longer-contract-horizon CEOs allocate more resources to exploratory R&D and set longer term incentives for CROs. The evidence is consistent with the view that longer contracts facilitate long-term investment and greater risk-taking by mitigating managerial myopia and career concerns.

How Sensitive is Young Firm Investment to the Cost of Outside Equity? Evidence from a UK Tax Relief (joint with Daniel Paravisini) – 2019

This paper estimates the sensitivity of entrepreneurial investment to the cost of equity. We use variation in access to two tax relief programs for individual equity investors in the UK as a source of exogenous variation in the cost of equity for entrepreneurial firms. We examine young, small firms that were covered by a tax relief program launched in 2012, and also slightly bigger firms that did not qualify for this new program. Comparing the trends in investment of these two groups of firms, we show that the sensitivity of entrepreneurial investment to the cost of equity is substantial. In contrast, we find no such evidence for medium-sized firms that by way of a policy change became eligible to a similar tax relief program also during 2012. We conclude that many of the small, young firms appear to have been equity constrained.

Exchanges of Innovation Resources Inside Venture Capital Portfolios – 2019

I explore exchanges related to the distribution and promotion of innovations between companies sharing common venture capital investors. I show that after companies join investors’ portfolios, exchanges between them and other companies in the portfolios increase by an average of 60%, relative to exchanges with matched non-portfolio companies. The increase holds for exchanges led by either new joiners or other portfolio companies, can begin before the joining event, is larger when information frictions and contracting complexities are more prevalent, and is similar when joining events are plausibly exogenous. Results suggest that returns to innovations are higher in venture capital portfolios.

Accelerators – 2018