C. N. V. Krishnan

Venture Capital Reputation, Post-IPO Performance and Corporate Governance

We examine the association of a venture capital (VC) firm’s reputation with the post-initial public offering (IPO) long-run performance of its portfolio firms. We find that VC reputation, measured by the past market share of VC-backed IPOs, has significant positive associations with long-run firm performance measures. While more reputable VCs initially select better-quality firms, more reputable VCs continue to be associated with superior long-run performance, even after controlling for VC selectivity. We find that more reputable VCs exhibit more active post-IPO involvement in the corporate governance of their portfolio firms, and this continued VC involvement positively influences post-IPO firm performance.

Shareholder Litigation in Mergers and Acquisitions

Using hand-collected data, we examine the targeting of shareholder class action lawsuits in merger & acquisition (M&A) transactions, and the associations of these lawsuits with offer completion rates and takeover premia. We find that M&A offers subject to shareholder lawsuits are completed at a significantly lower rate than offers not subject to litigation, after controlling for selection bias, different judicial standards, major offer characteristics, M&A financial and legal advisor reputations as well as industry and year fixed effects. M&A offers subject to shareholder lawsuits have significantly higher takeover premia in completed deals, after controlling for the same factors. Economically, the expected rise in takeover premia more than offsets the fall in the probability of deal completion, resulting in a positive expected gain to target shareholders. However, in general, target stock price reactions to bid announcements do not appear to fully anticipate the positive expected gain from potential litigation. We find that during a merger wave characterized by friendly single-bidder offers, shareholder litigation substitutes for the presence of a rival bidder by policing low-ball bids and forcing offer price improvement by the bidder.

On Credit-Spread Slopes and Predicting Bank Risk

We examine whether bank credit-spread curves, engendered by subordinated debt, would help predict bank risk. We extract credit-spread curves for each bank each quarter and analyze the predictive properties of creditspread slopes. We find that credit-spread slopes are significant predictors of future credit spreads. We also find that credit-spread slopes provide significant additional information on future bank risk variables, over and above other bank-specific and market-wide information.

Law Firm Expertise and Merger and Acquisition Outcomes

Using a comprehensive sample of U.S. mergers and acquisitions (M&A) bids over 1990–2008, we document that top-market-share law firms are associated with a number of important bid outcomes and characteristics. Top bidder law firms are associated with significantly higher offer completion rates. In contrast, top target law firms are associated with significantly higher offer withdrawal rates. Top bidder and target law firms are both associated with significantly higher takeover premia. These associations are significant even after controlling for selection bias and major offer, bidder, and investment bank adviser characteristics. Our interpretation is that top bidder law firms have stronger incentives and abilities to facilitate deal completions, while top target law firms have stronger incentives and abilities to help realize higher takeover premia, consistent with their clients’ objectives. Our findings suggest that law firm market share is an important omitted variable in current economic models of M&A deal outcomes.

Predicting Credit Spreads

Predictions of firm-level credit spreads based on the current spot and forward credit spreads can be significantly improved upon by using the information contained in the shape of the credit-spread curve. However, the current credit-spread curve is not a sufficient statistic for predicting future out-of-sample credit spreads; predictions can be significantly improved upon by exploiting the information contained in the shape of the riskless yield curve. In the presence of credit-spread and riskless factors, other macroeconomic, marketwide, and firm-specific risk variables do not significantly improve predictions of credit spreads. These results have important implications for credit-spreads modeling as well as for better understanding corporate capital structure and risk management policies.

Top finance journals: Do they add value?

This paper develops a methodology for determining the value added by journals to articles they publish and uses this methodology to study five leading finance journals in the period 1990 through 2002. The quality of an article is disaggregated into two components—a component inherent to the article and a component added by the journal. Inherent article quality is proxied by author reputation and the reputation of the authors school, while journal value added is proxied by editorial board quality, journal age, and journal readership characteristics. Our Tobit regression analysis results show that theJournal of Finance, theJournal of Financial Economics, and theReview of Financial Studies add significant value over and above inherent article quality.

Law Firm Expertise and Mergers and Acquisitions

Using a comprehensive sample of U.S. mergers and acquisitions (M&A) bids over 1990-2008, we document that top market share law firms are associated with a number of important bid outcomes and characteristics. Top bidder law firms are associated with significantly higher offer completion rates than other bidder law firms. In contrast, top target law firms are associated with significantly higher offer withdrawal rates than other target law firms. Top bidder and target law firms are both associated with significantly higher takeover premia than less prominent law firms. These associations are significant even after controlling for selection bias and major offer, bidder, and investment bank advisor characteristics. Our interpretation is that top bidder law firms have stronger incentives to facilitate deal completions, while top target law firms have stronger incentives to help realize higher takeover premia, consistent with their respective clients’ objectives, than other law firms. Our findings suggest that law firm market share is an important omitted variable in current models of M&A deal outcomes.

Venture Capital Reputation: A Survey

For financial intermediaries that operate in a highly fragmented industry, such as venture capital (VC) firms, reputation is highly valuable in building credibility with entrepreneurs and investors and enhancing business relationships. A strong reputation benefits both a VC firm’s investors and principals and its portfolio companies by making exits from venture investments more profitable and likely. In this survey piece, we compare the associations of a variety of alternative reputation measures for the lead (largest) investor in the VC syndicate with the VC’s portfolio company performance measured by the probability of future IPOs and post-IPO long-run performance metrics. We examine the following VC reputation measures: 1) a VC’s market share of all venture backed IPOs in the immediately preceding 3 calendar years; 2) the number of completed IPOs in a VC’s portfolio over the prior 3 calendar years relative to the number of companies it actively invested in; 3) the value-weighted proportion of a VC’s IPO investments relative to its total investments; 4) the age of a VC firm; 5) the capital under a VC firm’s management; and 6) a VC firm’s total investment in portfolio firms. We document that past IPO success measured by the first three VC reputation measures above have significant predictive power for subsequent IPO success. Importantly, only the first reputation measure, VC IPO Market Share, has significant explanatory power across all the post-IPO long-run performance measures we examine, while the other VC reputation measures are sometimes significant. This result holds even after controlling for selection bias. We also find two variants of VC IPO Market Share, the cumulative IPO market share measure and the average of the VC syndicate IPO market share measure, yield qualitatively similar, albeit weaker, associations with long-run post-IPO performance measures. An appendix to this survey lists the 1000 most reputable VCs and their year-by-year VC IPO Market Share reputation measure for use in future studies.

Who are the Top Law Firms?Assessing the Value of Plaintiffs’ Law Firms in Merger Litigation

Using a hand-collected sample of 1,739 class actions that challenge the fairness of M&A transactions from the period 2003 through 2012, we examine the effectiveness of plaintiffs’ law firms. From out of the 336 law firms in our sample, we determine the top law firms based on their popularity with informed plaintiffs as well as their proven ability to obtain large attorneys’ fees awards. We find that the presence of a top plaintiffs’ law firm is significantly and positively associated with a higher probability of lawsuit success. These results hold even after instrumenting for unobserved case quality, given that top law firms likely can obtain better cases with higher chances of success. This success appears to stem from the fact that top plaintiffs’ law firms are significantly more active in prosecuting cases than other plaintiffs’ law firms: they file more documents in the cases they litigate and they are more likely to bring injunction motions to enjoin a transaction. Defendants are also less likely to file a motion to dismiss cases filed by top plaintiffs’ law firms. Our results inform the debate over shareholder litigation as well as provide courts guidance for selecting lead counsel in shareholder class action litigation. ** Please address correspondence to CNV Krishnan at cnk2@case.edu. CNV Krishnan is at Weatherhead School of Management, Case Western Reserve University; Steven Davidoff Solomon is at the University of California Berkeley, School of Law; and Randall S. Thomas is the John S. Beasley II Professor of Law and Business at Vanderbilt University Law School. The authors thank the editor, Max Schanzenbach, two anonymous reviewers, the participants in the University of California at Berkeley School of Law Faculty Workshop, the members of the University of San Diego Law School’s Innovation and Financial Regulation Seminar, The Law and Business Workshop at Vanderbilt Law School, Chief Justice Leo E. Strine, Jr. of the Delaware Supreme Court, Professors Robert P. Bartlett, III, Paul Edelman and Jonathan Karpoff and several plaintiffs’ lawyers for their comments and suggestions. The authors also thank John Dotson, Scott Prince, Mary Prince and the Vanderbilt Law School librarians for their research assistance.

Jurisdictional Effects in M&A Litigation

We compile the most extensive hand collected data set on all forms of MA no target lawsuit is filed in Delaware during our sample period. Finally, we find that while jurisdiction does not significantly affect settlement rates or the consideration paid upon settlements, litigation challenging controlling shareholder squeeze-outs is more likely to settle with cash consideration paid to shareholders, reflecting the stricter judicial standard applied to such bids.