Vineet Bhagwat

What Doesn't Kill You Will Only Make You More Risk-Loving: Early-Life Disasters and CEO Behavior

The literature on managerial style posits a linear relation between a CEO’s past experiences and firm risk. We show that there is a non-monotonic relation between the intensity of CEOs’ early-life exposure to fatal disasters and corporate risk-taking. CEOs who experience fatal disasters without extremely negative consequences lead firms that behave more aggressively, whereas CEOs who witness the extreme downside of disasters behave more conservatively. These patterns manifest across various corporate policies including leverage, cash holdings, and acquisition activity. Ultimately, the link between CEOs’ disaster experience and corporate policies has real economic consequences on firm riskiness and cost of capital.

Board Diversity, Firm Risk, and Corporate Policies

We examine the effects of diversity in the board of directors on corporate policies and risk. Using a multidimensional measure, we find that greater board diversity leads to lower volatility and better performance. The lower risk levels are largely due to diverse boards adopting more persistent and less risky financial policies. However, consistent with diversity fostering more efficient (real) risk-taking, firms with greater board diversity also invest persistently more in research and development (R&D) and have more efficient innovation processes. Instrumental variable tests that exploit exogenous variation in firm access to the supply of diverse nonlocal directors indicate that these relations are causal.

Pump It Up? Tweeting to Manage Investor Attention to Earnings News

We examine how firms tweeting behavior affects earnings-news returns. Tweeting about earnings news increases the magnitude of announcement returns, particularly when the earning surprise is small and positive and when the firm is less visible as measured by firm size or analyst coverage. We also find evidence of strategic tweeting, particularly by firms that manage earnings: financial tweeting is more frequent around positive earnings surprises, especially those that are less visible. Overall, we conclude Twitter provides firms an effective and strategic way to mitigate investors limited attention to news, especially when the news is otherwise less likely to attract notice.

Manager Networks and Coordination of Effort: Evidence from Venture Capital Syndication

I explore whether educational connections between managers of venture capital (VC) firms can alleviate coordination costs, and thereby enhance collaboration, when engaging in economic ties with other organizations. Two given VC firms are three times as likely to syndicate an investment together if their managers overlapped at an educational institution, and their subsequent investments are associated with better investment outcomes, as measured by IPO exit. The effects are stronger in early-stage investments, in larger syndicates and for those VC firm-pairs syndicating with each other for the first time, and do not appear to be driven by manager latent talent. The mechanism for increased performance in the network is through a reduction in coordination costs, enhancing collaboration between the two parties.

The 'Seller's Put' and Deal Terms in Corporate Mergers and Acquisitions

We provide novel evidence that the interim risk between a merger deals announcement and completion is asymmetrically borne by the bidder. While the target can generally accept higher offers during the interim period -- presumably when its value increases -- the legal literature argues that bidders are more constrained in their ability to withdraw. We find that the likelihood of deal renegotiation is higher only when the targets value increases relative to the offer value during the interim period. Furthermore, we find significant effects on the bid premium, break-up fee, and method of payment, all consistent with this asymmetric risk hypothesis.

Are the Risk Attitudes of Professional Investors Affected by Personal Catastrophic Experiences

We adopt a novel empirical approach to show that the risk attitudes of professional investors are affected by their catastrophic experiences – even for catastrophes with no economic impact on these investors or their portfolio firms. We study the portfolio risk of U.S.-based mutual funds that invest outside the U.S. before and after fund managers personally experience severe natural disasters. Using differences-in-differences, we compare managers in disaster versus non-disaster counties matched on prior disaster probability and fund characteristics. We find that monthly fund return volatility decreases by roughly 60 bps in year 1 and the effect disappears by year 3. Systematic risk drives the results. Additional analyses rule out wealth effects (using disasters with no damages) and managerial agency, skill, and catering explanations.

A Bit Goes a Long Way: Bilateral Investment Treaties and Cross-Border Mergers

We examine whether Bilateral Investment Treaties (BITs) remove impediments to foreign investment by helping enforce contracts and property rights. We find that BITs have a large, positive effect on cross-border mergers: the probability and dollar volume of mergers between two given countries more than doubles after the signing of a BIT. Most of this increase is driven by capital flowing from developed economies to developing economies, answering the long-standing Lucas Paradox as to why most cross-border capital still flows to developed countries. Additionally, most of our results are driven by target countries with “medium” levels of political risk, consistent with popular views that BITs are ineffective for countries with very high risk and not necessary for countries with low political risk.

Surya Tutoring: Evaluating a Growth Equity Deal in India

The case focuses on two major challenges in deal making in emerging market economies---deal sourcing and negotiation---by focusing on a real (but disguised) Indian private equity deal. In 2010 Surya Tutoring was a fast-growing tutoring academy for high school students aspiring to gain admission to the prestigious Indian Institute of Technology (IIT). Surya’s CEO, R. K. Sharma, wanted to expand its reach beyond Kota (a city of 1 million people in the northern state of Rajasthan), which had become the center of the IIT prep school industry and home to tens of thousands of students studying for the rigorous IIT entrance exam. Sharma knew there was vast untapped potential in the teeming Indian metropolises of Mumbai, Chennai, Delhi, and Bangalore, as well as in foreign markets such as Dubai and Australia. Sharma had received term sheets from two private equity firms willing to finance Surya’s expansion. By the end of the month he needed to decide which to accept: the offer from big bulge bracket fund Blackgem, or the one from ZenCap, a small Indian firm based in Mumbai with which he had become intimately familiar during the past year. n nAfter analyzing and discussing the case, students should be able to: n nIdentify the differences between the United States and an emerging market such as India when it comes to deal sourcing, negotiation, and financial contracting n n nValue a growth equity transaction in an emerging economy, including financial, contractual, and qualitative (social networks, local knowledge, trust) aspects of the deal