Alexander Ljungqvist

Whom You Know Matters: Venture Capital Networks and Investment Performance

Many financial markets are characterized by strong relationships and networks, rather than arms-length, spot-market transactions. We examine the performance consequences of this organizational choice in the context of relationships established when VCs syndicate portfolio company investments. VC firms that enjoy more influential network positions have significantly better fund performance, as measured by the proportion of investments that are successfully exited through an IPO or sale to another company. Similarly, the portfolio companies of better-networked VC firms are significantly more likely to survive to subsequent financing and to eventual exit. Finally, we provide initial evidence on the evolution of VC networks.

Hot Markets, Investor Sentiment, and IPO Pricing

Our model of the initial public offering process links the three main empirical IPO anomalies underpricing, hot issue markets, and long-run underperformance and traces them to a common source of inefficiency. We relate hot IPO markets (such as the 1999/2000 market for Internet IPOs) to the presence of a class of investors who are irrational in the sense of having exuberant expectations regarding future performance. Underpricing and long-run underperformance emerge as underwriters attempt to maximize profits from the sale of equity, at the expense of these exuberant investors. Underpricing serves to compensate regular IPO investors for their role in restricting the supply of available shares and maintaining prices. The model is shown to be consistent with many aspects of the IPO process. It also generates a number of new empirical predictions.

IPO Allocations: Discriminatory or Discretionary?

Provided herein is a method for manufacturing a semiconductor device. The method may include: forming a stack including at least one first material layer and at least one second material layer which are alternately stacked; forming first holes through which the at least one first material layer is exposed; forming etch stop patterns in the respective first holes; forming at least one slit passing through the stack; replacing the at least one first material layer with at least one third material layer through the at least one slit; and forming first contact plugs in the respective first holes, the first contact plugs passing through the etch stop patterns and coupled with the at least one third material layer.

Investor Sentiment and Pre-IPO Markets

We examine whether irrational behavior among small (retail) investors drives post-IPO prices. We use prices from the grey market (the when-issued market that precedes European IPOs) to proxy for small investors’ valuations. High grey market prices (indicating excessive optimism) are a very good predictor of first-day aftermarket prices, while low grey market prices (indicating excessive pessimism) are not. Moreover, we find long-run price reversal only following high grey market prices. Thus, small investors sometimes drive post-IPO prices temporarily upwards, but never downwards. This asymmetric pattern obtains because the larger (institutional) investors who are allocated IPO shares sell them to small investors in the aftermarket when the small investors are overoptimistic, but ignoring them when they are excessively pessimistic. ∗We thank Alex Stomper for generously providing some of the data. Thanks for helpful comments go to Pierluigi Balduzzi, Nick Barberis, Walid Busaba, Wayne Ferson, Laura Field, Francisco Gomes, Steve Kaplan, Vojislav Maksimovic, Paul Marsh, Harold Mulherin, N.R. Prabhala, Jay Ritter, Rob Stambaugh (the editor), Mike Weisbach, Lucy White, Kent Womack, two anonymous referees, and seminar participants at Arizona State University, Boston College, Brunel University, Columbia Business School, Cornell University, IESE, University of Maryland, Michigan State University, the Norwegian School of Management in Oslo, the Norwegian School of Economics and Business Administration in Bergen, Oxford University, Tilburg University, University of Amsterdam, University of Exeter, University of Minnesota, University of Zurich, the NYSE/Stanford Conference on Entrepreneurial Finance and IPOs, the LSE-LBS Corporate Finance Workshop, the 2004 FIRS Conference on Banking, Insurance and Intermediation in Capri, the Spring 2004 NBER Corporate Finance Meeting, the 2004 EVI Conference at Dartmouth, and the 2005 AFA Meetings in Philadelphia. Dmitry Makarov provided excellent research assistance.

Pricing initial public offerings: Further evidence from Germany

Abstract In a recent article in this Review, Wasserfallen and Wittleder (Pricing initial public offerings: Evidence from Germany, European Economic Review 38, 1505–1517, 1994) [WW] provide evidence of the well-known underpricing phenomenon for 92 German IPOs coming to market in 1961–1987. Using a larger sample of 189 firms from 1970–1993, this paper (i) reassesses the evidence on underpricing in Germany, after choosing a different risk proxy to avoid potential endogeneity problems, and (ii) provides evidence of long-run IPO performance. A number of new results emerge. Stock market returns, the macroeconomic climate, insider retention rates, and inverse offer size all affect underpricing positively. Over longer horizons German IPOs are poor investments, losing more than twelve percent over their first three years of trading relative to the market (exclusive of the initial underpricing return). Negative performance is heavily concentrated after the end of WWs sampling period, in the post-1987 cohort.

Corporate Investment and Stock Market Listing: A Puzzle?

We investigate whether short-termism distorts the investment decisions of stock market-listed firms. To do so, we compare the investment behavior of observably similar public and private firms, using a new data source on private U.S. firms and assuming for identification that closely held private firms are subject to fewer short-termist pressures. Our results show that compared with private firms, public firms invest substantially less and are less responsive to changes in investment opportunities, especially in industries in which stock prices are most sensitive to earnings news. These findings are consistent with the notion that short-termist pressures distort investment decisions.

Networking as a Barrier to Entry and the Competitive Supply of Venture Capital

We examine whether networks among incumbent venture capital firms help restrict entryinto local VC markets in the U.S., thus improving VCs bargaining power over entrepreneurs. We show that VC markets with more extensive networking among the incumbent players experience less entry. The effect is sizeable economically and appears robust to plausible endogeneity concerns. Entry is accommodated if the entrant has established relationships with a target-market incumbent in its own home market. In turn, incumbents react strategically to an increased threat of entry, in the sense that they freeze out any incumbent that builds a relationship with a potential entrant. Finally, companies seeking venture capital raise money on worse terms in more densely networked markets while increased entry is associated with higher valuations.

Firm Value and Managerial Incentives: A Stochastic Frontier Approach

We examine the relation between firm value and managerial incentives in a sample of 1,487 U.S. firms in 1992-1997, for which the separation of ownership and control is complete. Unlike previous studies, we employ a measure of relative performance which compares a firm’s actual Tobin’s Q to the Q of a hypothetical fully-efficientfirm having the same inputs and characteristics as the original firm. We find that the Q of the average firm in our sample is around 10% lower than its Q, equivalent to a

Do Measures of Financial Constraints Measure Financial Constraints

1,340 million reduction in its potential market value. We investigate what causes firms to fail to reach their Q and find that our firms are more efficient, the higher are CEO stockholdings and optionholdings and the more sensitive are CEO options to firm risk. We also show that boards respond to inefficiency by subsequently strengthening incentives or replacing inefficient CEOs.

Monitoring Managers: Does it Matter?

Financial constraints are fundamental to empirical research in finance and economics. We propose two tests to evaluate how well measures of financial constraints actually capture constraints. We find that firms typically classified as constrained do not actually behave as if they were constrained: they have no trouble raising debt when their demand for debt increases exogenously and use the proceeds of equity issues to increase payouts to shareholders. Our evidence suggests that extant findings that have been attributed to constraints may instead reflect differences in the growth and financing policies of firms at different stages of their life cycles. Received December 9, 2014; accepted August 18, 2015 by Editor David Denis.