This article documents the fact that ventures funded by two successful angel groups experience superior outcomes to rejected ventures: They have improved survival, exits, employment, patenting, Web traffic, and financing. We use strong discontinuities in angel-funding behavior over small changes in their collective interest levels to implement a regression discontinuity approach. We confirm the positive effects for venture operations, with qualitative support for a higher likelihood of successful exits. On the other hand, there is no difference in access to additional financing around the discontinuity. This might suggest that financing is not a central input of angel groups.

The economics of partnerships have been of enduring interest to economists, yet it is not clear what profit sharing within a private partnership should look like. We examine over 700 private equity partnerships and show that the allocation of fund economics to individual partners varies drastically, even among the most senior partners, and appears divorced from past success as an investor, being instead related to status as a founder. A smaller share of carried interest and ownership—and inequality in fund economics more generally—is associated with departures of senior partners which, in turn is negatively related to the funds’ ability to raise additional capital.

This paper presents the theory that managers can use the liquidity of securities as a choice variable to screen for deep-pocket investors, those that have a low likelihood of facing a liquidity shock. We assume an information asymmetry about the quality of the manager between the existing investors and the market. The manager then faces a lemons problem when he has to raise funds for a subsequent fund from outside investors, because the outsiders cannot determine whether the manager is of poor quality or the existing investors were hit by a liquidity shock. Thus, liquid investors can reduce the manager's cost of capital in future fundraising. We test the assumptions and predictions of our model in the context of the private equity industry. Consistent with the theory, we find that transfer restrictions on investors are less common in later funds organized by the same private equity firm, where information problems are presumably less severe. Also, partnerships whose investment focus is in industries with longer investment cycles display more transfer constraints. Finally, we present evidence consistent with the assumptions of our model, including the high degree of continuity in the investors of successive funds and the ability of sophisticated investors to anticipate funds that will have poor subsequent performance.

Patents and citations are powerful tools increasingly used in financial economics (and management research more broadly) to understand innovation. Biases may result, however, from the interactions between the truncation of patents and citations and the changing composition of inventors. When aggregated at the firm level, these patent and citation biases can survive popular adjustment methods and are correlated with firm characteristics. These issues can lead to problematic inferences. We provide an actionable checklist to avoid biased inferences and also suggest machine learning as a potential new way to address these problems.

Economists have long seen the patent system as a crucial lever through which policymakers affect the speed and nature of innovation in the economy. It is not surprising, then, that the profound changes which have roiled the global patent system over the past 20 years are attracting increasing attention from the economics profession. A critical question relates to the impact of these shifts: to what extent do they really affect the pace of innovative discovery and diffusion? Much of the theoretical economics literature, such as Richard Gilbert and Carl Shapiro [1990], has assumed an unambiguous relationship between the strength of patent protection and the rate of innovation. This assumption has been relaxed in a line of work on sequential innovation, beginning with Suzanne Scotchmer and Jerry Green [1990]. This research addresses this question by examining the impact of major patent policy shifts in sixty nations over the past 150 years. I examine the changes in patent applications by residents of the nation undertaking the policy change. While I tabulate domestic filings by residents and non-residents alike, confounding factors may influence

This paper examines three sets of explanations for variations in the strength of patent protection across sixty countries and a 150-year period. Wealthier nations are more likely to have patent systems, to allow patentees a longer time to put their patents into practice, and to ratify treaties assuring equal treatment of other nations. But they are also likely to charge higher fees and limit patent protection in some important ways. Countries with democratic political institutions are consistently more likely to have patent protection appear to be determined by historical factors. The origin of a country's commercial law appears particularly important in explaining the presence of restrictions on patentees' privileges and discriminatory provisions against foreign patentees.

Analyzing 210 developing country private equity investments, we find that transactions vary with nations' legal enforcement, whether measured directly or through legal origin. Investments in high enforcement and common law nations often use convertible preferred stock with covenants. In low enforcement and civil law nations, private equity groups tend to use common stock and debt, and rely on equity and board control. Transactions in high enforcement countries have higher valuations and returns. While relying on ownership rather than contractual provisions may help to alleviate legal enforcement problems, these results suggest that private solutions are only a partial remedy.