This paper identifies a new channel through which bankrupt firms undergoing liquidation impose negative externalities on their nonbankrupt peers. The liquidation of a retail chain weakens the economies of agglomeration in any given local area, reducing the attractiveness of retail centers for remaining stores and leading to contagion of financial distress. We find that firms with greater geographic exposure to bankrupt retailers are more likely to close stores in affected areas. We further show that the effect of these externalities on nonbankrupt peers is higher when affected stores are smaller and are operated by firms in financial distress. Received December 16, 2015; editorial decision June 28, 2018 by Editor Philip Strahan.

We survey 79 private equity (PE) investors with combined assets under management of more than $750 billion about their practices in firm valuation, capital structure, governance, and value creation. Investors rely primarily on internal rates of return and multiples to evaluate investments. Their limited partners focus more on absolute performance as opposed to risk-adjusted returns. Capital structure choice is based equally on optimal trade-off and market timing considerations. PE investors anticipate adding value to portfolio companies, with a greater focus on increasing growth than on reducing costs. We also explore how the actions that PE managers say they take group into specific firm strategies and how those strategies are related to firm founder characteristics.

We investigate how personal characteristics affect people's desire to collaborate and whether this attraction enhances or detracts from performance in venture capital. We find that venture capitalists who share the same ethnic, educational, or career background are more likely to syndicate with each other. This homophily reduces the probability of investment success, and the detrimental effect is most prominent for early-stage investments. A variety of tests show that the cost of affinity is most likely attributable to poor decision-making by high-affinity syndicates after the investment is made. These results suggest that “birds-of-a-feather-flock-together” effects in collaboration can be costly.

We explore gender differences in performance in a comprehensive sample of venture capital investments in the United States. Investments by female venture capital investors have significantly lower success rates than investments by their male colleagues when controlling for personal characteristics, including employment and educational history, and portfolio companies’ characteristics. The gender differences in investment outcomes are not due to female investors being less skilled but, rather, are largely attributable to female investors receiving less benefit from the track records of their colleagues. Performance differences disappear in older, larger firms and firms with other female investors. This supports the view that formal feedback mechanisms and hierarchies are potentially useful in ameliorating the female performance gap.