I examine the emerging phenomenon of PIPEs (private investments in public equity) invested by venture capital funds (VCs) and hedge funds (HFs) and analyze whether and how these investors add value to firms by comparing a sample of 113 VC-invested PIPEs to a sample of 397 PIPEs with HFs. I find that VCs gain substantial ownership, request board seats, and often keep their stake after the PIPEs. In contrast, HFs rarely join the board of directors and typically cash out their positions shortly after the PIPE. The stock performance of VC-invested firms is significantly better than HF-invested firms both in the short run and in the long run. The positive valuation effect of having VCs as PIPE investors appears to be a certification effect rather than a monitoring effect. A key implication from these findings is that investor identity matters.

I study the causes and consequences of staging in the setting of private investments in public equities (PIPEs). I find that, in PIPE investments, as in venture capital staging, the staging strategy is used by investors as a monitoring mechanism to mitigate information asymmetry and agency problems. Moreover, strategic investors and investors investing alone are more likely to utilize staging. I show also that staging reduces the cost of financing and has positive implications for PIPE issuers’ long-run stock performance.

We examine how individualism, a cultural attribute that emphasizes autonomy, ability, and self-belief, affects hedge funds (HFs). Using Hofstede's framework, we show HFs located in individualistic (IDV) cultures structure their contracts with more performance-driven incentives, take greater risk, and herd less. Individualism also influences risk-shifting behavior: after initial underperformance, HFs increase risk-taking in high IDV cultures. Yet, HFs do not outperform in individualistic countries and draw lower Sharpe ratios, which highlights the link between individualism and overconfidence/over-optimism. Interestingly, HFs' survival is less sensitive to performance in individualistic cultures, again consistent with greater autonomy and opportunities in these countries.

In 2002, the SEC launched enforcement actions against investors involved in PIPE (Private Investments in Public Equity) transactions. We describe the legal ramifications of this enforcement initiative, and document dramatic contemporaneous market-wide changes in the contractual structure of PIPEs. PIPEs in the post-action period included fewer aggressive repricing rights and more trading restrictions. However, PIPEs in the post-action period also included more investor protections and fewer issuer rights. These results suggest that the SEC’s enforcement enticed investors to substitute non-SEC-targeted contractual features for targeted ones. Our paper sheds new light on the role of legal enforcement on financial contract design.

Using a large sample of U.S. small businesses and a new measure of optimism, we examine the role of entrepreneurial optimism in small business lending. We provide evidence that optimistic entrepreneurs are not rationed by lenders. Quite the opposite, our results suggest that they often have better credit accessibility and obtain lower cost of financing. Our results are robust to alternative measures of optimism and controls for private information between lenders and borrowers.

We provide evidence of a significant relation between diversification and performance in the hedge fund industry. Measuring diversification across four distinct dimensions, we find a significant positive relation between hedge fund performance and diversification across sectors and asset classes. We show that on a risk adjusted basis, hedge funds that diversify across sectors and asset classes outperform other funds by an average of 1.1% per year. However, diversification across styles and geographies exhibits a significant negative association with hedge fund returns. Funds that diversify across styles and geographies underperform other funds by an average of 1% per year. For fund of hedge funds, we find a significant positive relation between performance and diversification across sectors. However, diversifying across asset classes and geographies is found to exhibit a negative relation with fund performance. Finally, we find that the motive to engage in diversification is consistent with managerial incentive structure in the hedge fund industry.

We examine the firm's choice between an SEO and a PIPE, an innovation in follow-on equity selling mechanism seen in the late 1990s. Our primary finding indicates that the rapid rise of the PIPE market fills the capital needs of firms which may not have access to more traditional alternatives. This lack of access is driven mainly by information asymmetry and weak operating performance. We also show that firms are more likely to choose PIPEs when the general market and the firm's stock are performing poorly. Furthermore, we find that selected firms with access to the public market may prefer a PIPE due to specific cost considerations.

Delaware hedge funds exhibit significant differences in contractual structure in terms of higher management and incentive fees. Delaware funds are more likely to use high watermark provisions and less likely to invest their personal capital. Both the redemption notice periods and lock up periods are significantly longer for Delaware hedge funds. While Delaware hedge funds do not outperform or underperform funds registered elsewhere, fund flows are more sensitive to Delaware funds' prior performance and Delaware funds are more likely to be liquidated due to poor performance. Further, Delaware funds are more likely to increase risk after poor absolute performance.

This paper analyzes hedge fund performance, risk, and fund flows before and after the implementation of the Dodd–Frank Act. The data indicates that, relative to non-US hedge funds, US hedge funds that are regulated under Dodd–Frank have lower fund alphas in the post-Dodd–Frank implementation period, both statistically and economically significant, while the evidence on its effect on risk (standard deviations and idiosyncratic risk) is mixed. We find evidence that there is more fund outflow (or less fund inflow) for certain US hedge fund strategies after the implementation of Dodd–Frank. We show some differences in these findings dependent on fund size and strategy. The findings are robust to difference-in-differences analyses comparing US to non-US funds.

This paper tests the idea that financial regulation can impact performance persistence in the context of the hedge fund industry in 48 countries over the years 1994–2008. The data show evidence of three types of regulation influencing performance persistence: (1) minimum capital restrictions, which restrict lower quality funds and hence increase the likelihood of performance persistence, (2) restrictions on location of key service providers, which restrict human capital choices and hence tend to mitigate performance persistence, and (3) distribution channels, which make fund performance more opaque, decrease the likelihood of performance persistence. We do not find evidence that distribution channels, that promote fund presence to institutional investors, enhance performance persistence. Finally, we show differences in the effect of regulation on persistence by fund quartile ranking.