Formal finance involves the costly acquisition of information about distant entrepreneurs, while relationship-based finance allows financiers to fund a narrow circle of close entrepreneurs without acquiring costly information. In developing economies with low capital endowments, relationship-based finance is optimal because only high-quality entrepreneurs receive funding. However, formal finance may emerge in equilibrium, and it has the only effect of shifting rents from entrepreneurs to financiers. In more-developed economies with higher capital endowments, formal finance becomes necessary to prevent funding of low-quality entrepreneurs. Nevertheless, relationship-based financing may persist in equilibrium, and low-quality close entrepreneurs are funded even when there are high-quality distant entrepreneurs.

We construct a mortality table for U.S. public companies during 1985–2006. We find that the age-specific mortality rates of firms initially increase, peaking at age three, and then decrease with age, implying that the first 3 years of public life are critical. Financial intermediaries involved around the “public birth” of a firm (e.g., venture capitalists (VCs) and high-quality underwriters) are associated with lower firm mortality rates, sometimes for up to 7 years after the initial public offering (IPO). VCs reduce mortality rates more through natal financial care than through selection, whereas high-quality underwriters affect firm mortality more through selection.

We study the impact of directors with foreign experience on firm performance in emerging markets. Using a unique data set from China, we exploit the introduction of policies to attract talented emigrants and increase the supply of individuals with foreign experience in different provinces at different times. We document that performance increases after firms hire directors with foreign experience and identify the channels through which the emigration of talent may lead to a brain gain. Our findings provide evidence on how directors transmit knowledge about management practices and corporate governance to firms in emerging markets.