Working Papers

Private Investments in Public Equity: Discount for Lack of Marketability and Fair-Value Hypothesis


Work in progress (with A. Bernardo and I. Welch)

Abstract: The pricing of illiquidity (due to lack of marketability) is a contentious issue in Private Investments in Public Equity (PIPEs). We exploit the 2008 amendment to Rule 144(k) to estimate the effect of the shortening of the mandatory holding period on the discount for lack of marketability (DLOM). The annualized inferred DLOM is 3-4%. The DLOM can increase when marketability is a greater concern. Our paper also contributes to the PIPE performance puzzle (Hertzel et al., 2002). While non-participating investors in PIPE companies incur significant losses post-PIPE, participating investors purchasing stock privately at a discount make a zero-abnormal return over the expected illiquidity period. Our results support the hypothesis that PIPE investors are able to negotiate discounts commensurate with the expected underperformance of PIPEs companies.

The Illiquidity Discount on Start-up Firm Value: Evidence from Venture Capital


Work in progress (with J. Barg and W. Drobetz)

Abstract: We examine a novel dataset containing more than 60,000 venture capital (VC) transactions during the 2000-2019 period. We identify the illiquidity discount on start-up firm value using a reverse engineering approach, in which we infer the actual illiquidity discount from actual exit prices (either through M&A or IPO) in combination with details about the initial VC deals and the actual illiquidity period. We are able to econometrically disentangle endogenous screening and coaching effects in VC-backed start-up firms using a rich fixed-effects specficiation.

Takeover Law Enforcement and Acquirer Returns


R&R at Journal of Corporate Finance (with G. Dissanaike, W. Drobetz, J. Rocholl)

Abstract: This paper examines the impact of takeover law enforcement on corporate acquisitions. We use the European Takeover Directive as a natural experiment, which harmonizes takeover law across countries, while leaving its enforcement to the discretion of individual countries. We exploit this heterogeneity in enforcement quality across countries in a difference-in-differences-in-differences model, while employing an overall inductive research approach, following the recommendation in Karpoff and Whittry (2018). We find that acquirer returns increase in countries with changes in takeover law, driven by improved target selection and lower cost of financing. The increase in acquirer returns is lower in weak enforcement jurisdictions, which we identify by developing a novel Takeover Law Enforcement Index (TLEI). The findings show that takeover law can mitigate agency conflicts, but its true value depends on its enforcement. Our results are robust to a number of robustness tests.

CEO Emotions and Firm Valuation in Initial Coin Offerings: An Artificial Emotional Intelligence Approach


R&R at Strategic Management Journal

Abstract: CEO emotions are difficult to measure and hence empirically understudied. However, using artificial emotional intelligence, positive and negative affects can be identified from facial muscle contraction-relaxation patterns obtained from public CEO photos during initial coin offerings (ICOs), i.e., blockchain-based issuances of cryptocurrency tokens to raise growth capital. The results suggest that CEO affects impact firm valuation in two ways. First, CEOs’ own firm valuations conform more to those of industry peers if negative affects are pronounced (conformity mechanism). Second, investors use CEO affects as signals about firm value and discount when negative affects are salient (signaling mechanism). Negative affects can reduce firm value by up to 15%. Both mechanisms are stronger in the presence of asymmetric information and robust to tests of endogeneity.