We examine the effect of corporate asset-backed securitization on managerial compensation. We find that CEO compensation increases after securitization of corporate assets, which is consistent with two distinct theoretical views: (1) asset-backed securitization improves the efficiency of performance-based compensation as corporate performance becomes a better signal of managerial effort and (2) securitization of corporate assets mitigates liquidity constraints so that firms can make more efficient investments. We find that securitization primarily affects short-term accounting components (bonuses) and less equity-based components of the CEO's performance-based compensation. Further investigation reveals support for the second view of liquidity but not the first view of moral hazard. The results are robust to controlling for both possible self-selection biases associated with the decision to rely on asset-backed securitization as a means of external financing and simultaneity between executive compensation and financial decisions (securitization and leverage).

Equity crowdfunding is a new form of entrepreneurial finance, in which investors do not receive perks or engage in pre-purchase of the product, but rather participate in the future cash flows of a firm. In this paper, we analyze what determines individual investment decisions in this new financial market. One important factor that may influence the behavior of investors is the way the portal allocates securities. We use unique data from four German equity crowdfunding portals to examine how the allocation mechanism affects funding dynamics. In contrast with the crowdfunding campaigns on Kickstarter, on which the typical pattern of project support is U shaped, we find that equity crowdfunding dynamics are L shaped under a first-come, first-served mechanism and U shaped under a second-price auction. The evidence also shows that investors base their decisions on information provided by the entrepreneur in the form of updates as well as by the investment behavior and comments of other crowd investors.

We examine the impact of lead arrangers' reputation on the design of loan contracts such as spread and fees charged. Controlling for the non-randomness of the lender–borrower match (self-selection bias), we find that the reputation of top tier arrangers leads to higher spreads, and that top tier arrangers retain larger fractions of their loans in their syndicates. These larger spreads are especially pronounced for borrowers without credit rating that have the most to gain from the certification assumed by virtue of a loan contract with a top tier arranger. This certification channel differs from the one found in public markets, where certification leads to a reduced spread offered to the best clients. These differences between public and private markets can be explained by differences in the way they operate and are structured. Interestingly, the effect is strongest for transactions done after the changes in the banking regulations (including the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994) that led to significant consolidations in the banking industry, including among the largest commercial banks.

In this study, we explored the presence of correlated investment choices (i.e., herd behaviour) among international buyout funds by distinguishing among the contemporaneous and the following herding of smaller funds towards the top market players (i.e., the top quartile in terms of the fund size). In our analyses, we found that the industry herding towards the largest ones is common in private equity (PE) but mostly during market contractions or the deterioration of general market conditions. Moreover, we also found that as capital inflows into the PE industry slow down, herding occurs more often. This finding is consistent with the increasing competition for new capital fundraising in downturns, which can induce PE funds to herd more. We also found that both types of herding generate higher fund returns and lower risk for funds that are capable of herding. Additionally, we documented the persistence in herding.

In this paper, we investigate whether fund-specific risk helps explain performance persistence in private equity funds, using detailed deal-level cash flow information at both the fund and deal levels. We further extend existing findings to international evidence on buyout and venture capital (VC) by testing the impact of various risk measures. We find that risk is an important driver of performance persistence and helps explain such persistence. We also find persistence in risk in private equity, in particular persistence in downside volatility for both buyout and VC funds. Finally, we document that fund performance is more strongly affected by fund managers able to minimize downside losses than selecting outperforming portfolio companies. This effect is strongest for buyout but, to a weaker extent, also holds for VC. Our results are further robust to controlling for legal factors at the country level.

This paper explores whether private equity firms that are new to the industry take excessive risks relative to funds from established firms. We use differences between the implicit incentives of managers of experienced and of novice funds as an identification strategy. We find that novice funds invest more slowly than experienced funds, contradicting the risk-taking hypothesis. However, the size of their investments, in value and as fraction of fund size, is larger; this could be consistent with risk-shifting by novice funds but also with alternative hypotheses. We find that the size difference increases over time and is absent from buyout investments. We also find that novice funds tend to underperform most dramatically for early large investments, and that the size of their investments increases after a first successful exit. These and other findings are in conflict with the excessive risk-taking hypothesis, but largely consistent with alternative explanations that emphasize differences in expertise.

This paper examines the impact of VC ownership beyond the IPO listing on important and consequential corporate decisions in a firm's lifetime. We find that VC funds delay the initiation of dividends by approximately two years, delay the use of external growth strategies, and postpone introduction to the corporate bond market. These results are consistent with the view that VC funds extend the growth phase of the firm. We show that their presence at the time of these decisions leads to positive stock price reactions, suggesting that they provide a certification effect that signals continued growth opportunities, and that VC certification is not limited to the IPO listing.

This article surveys research on the effects of digitalization on access to finance. We focus the review on access through fintech. We review the growth of three main fintech technologies, fintech lending (incl. peer-to-peer lending), crowdfunding and initial coin offerings. We discuss existing evidence on how fintech affects access to finance for firms and investors and consider the regulatory challenges it poses. We incorporate the papers in this special issue, underlining their significant contributions to our understanding of the digitalization of finance and its effects. Finally, we discuss the challenges of research in the digital finance area and propose some new avenues for future research.

A common assumption is that entrepreneurs retain more control of their venture when opting for crowdinvesting rather than venture capital. In this article, we investigate the relevance of cash-flow, control, and exit rights awarded to crowd investors in Germany, where more flexible contracts are offered than in many other jurisdictions. In Germany, many of the rights used in venture capital investment contracts are also prevalent in crowdinvesting contracts. We find that crowd investors are asked to pay higher prices if they receive more cash-flow and exit rights, consistent with the view that these rights are valuable to the crowd. However, we find no evidence that these rights affect campaign outcome, the likelihood of securing follow-on funding, or the insolvency likelihood of the venture. We interpret this as evidence that the redemption rights stipulated in the contract make other types of control rights less relevant or investors' actions are ineffective. Furthermore, crowd investors neither trigger insolvency proceedings nor mention the enforcement of their contractual rights in investor communication blogs or popular media.

This paper introduces an analysis of the impact of Legality on the exiting of venture capital investments. We consider a sample of 468 venture-backed companies from 12 Asia-Pacific countries, and these countries' venture capitalists' investments in US-based entrepreneurial firms. The data indicate IPOs are more likely in countries with a higher Legality index. This core result is robust to controls for country-specific stock market capitalization, MSCI market conditions, venture capitalist fund manager skill and fund characteristics, and entrepreneurial firm and transaction characteristics. Although Black and Gilson (1998) [Black, B.S., Gilson, R.J., 1998. Venture capital and the structure of capital markets: banks versus stock markets. Journal of Financial Economics 47, 243–77] speculate on a central connection between active stock markets and active venture capital markets, our data in fact indicate the quality of a country's legal system is much more directly connected to facilitating VC-backed IPO exits than the size of a country's stock market. The data indicate Legality is a central mechanism which mitigates agency problems between outside shareholders and entrepreneurs, thereby fostering the mutual development of IPO markets and venture capital markets.