“The Globalization of Angel Investments: Evidence Across Countries”
with Josh Lerner, Antoinette Schoar and Karen Wilson
Journal of Financial Economics (2018)
This paper examines the role of investments by angel groups across a heterogeneous set of 21 countries with varying entrepreneurship ecosystems. Exploiting quasi-random assignment of deals around the groups’ funding thresholds, we find a positive impact of funding on firm growth, performance, survival, and follow-on fundraising, which is independent of the level of venture activity and entrepreneur-friendliness in the country. However, the maturity of startups that apply for funding (and are ultimately funded) inversely correlates with the entrepreneurship-friendliness of the country. This may reflect self-censoring by early-stage firms that do not expect to receive funding in these environments.
“Passive Asset Management, Securities Lending and Stock Prices”
with Darius Palia
How does the shift to passive investments affect securities prices? We propose and analyze a security lending channel in which passive funds serve as primary providers of lendable shares to make short selling possible. We show that stocks with high level of passive ownership exhibit greater supply of lendable shares which results in larger short positions, lower lending fees and longer durations of security loans. The effect of passive investors on security lending is significantly larger than the effect of other lenders such as actively managed funds and other institutional asset managers. Consistent with the literature on short-sale constraints, we find that constrained stocks with more passive ownership exhibit lower cross-autocorrelations with negative market returns and more negative skewness in stock returns. To mitigate identification concerns, we confirm our main findings using Russell index reconstitution that generates quasi-random variation in passive ownership. Our study suggests that passive investors make market prices more efficient by relaxing short-sale constraints.
We study the determinants of compensation in the mutual fund industry using Israeli tax records. The portfolio manager compensation is influenced by fund flows driven by past raw returns. Managers are thus paid equally for fund superior performance and for the fund’s passive benchmark returns. We interpret these results though a model that combines trust-mediated money management in the spirit of Gennanioli, Shleifer and Vishny (2015) and imperfect labor market competition. In our model, compensation and fund size are jointly determined by expected raw returns and by the level of intermediary’s trustworthiness. Additional empirical evidence confirms the distinct model predictions.