Equity crowdfunding, market timing, and firm capital structure

In a new paper, forthcoming in a special issue on equity crowdfunding in The Journal of Technology Transfer, we examine the impact of market timing on the capital structure of private firms that raise initial equity crowdfunding (ECF). Our sample includes firms financed via either Crowdcube or Seedrs, the two largest UK ECF platforms. We find that in hot markets, ECF firms set higher targets, collect more overfunding, and thus raise more equity capital than ECF firms in cold markets. Surprisingly, however, and inconsistent with a market timing theory of capital structure, we fail to find differences between the leverage ratios of hot- and cold-market firms from the year of the ECF campaign. This finding is explained by hot-market ECF firms contemporaneously rebalancing their capital structure by attracting more debt, especially financial debt.

Cerpentier, M., Vanacker, T., Paeleman, I. and Bringmann K. (2021) Equity crowdfunding, market timing, and firm capital structure. The Journal of Technology Transfer.
The article is available as ‘Online First’, please see:

Acquisitions: a curse or blessing for direct competitors? The impact of target ownership structure

This study examines the impact of horizontal acquisition announcements on the value of direct competitors of the combined entity. We argue that the ownership structure of the target drives competitor wealth effects. First, the stronger disciplining force of the market for corporate control for public firms compared to private firms will lead to higher competitive pressure post-acquisition when a public firm is acquired, leading to more negative valuation effects of direct competitors. Second, acquisitions of subsidiary targets, compared to stand-alone targets, are expected to lead to stronger asset utilization improvements in the target, leading to more negative competitor returns. A unique hand-collected sample of 1,038 direct competitors of 228 horizontal acquisitions in Europe empirically supports these hypotheses. Alternative explanations, such as information asymmetry or empire-building, are rejected.

Virginie Mataigne, Sophie Manigart, Mathieu Luypaert. Acquisitions: a curse or blessing for direct competitors? The impact of target ownership structure
Journal of Corporate Finance, forthcoming

The real effects of banks’ corporate credit supply: a literature review

In this paper, we review the rapidly growing literature on the real effects of banks’ corporate credit supply. We cover recent methodological advances and provide an in-depth survey of the existing evidence. The literature consistently shows that credit supply contractions lead to adverse real outcomes, but economic magnitudes vary across samples and identification strategies. This variation has become smaller in more recent work, using highly granular data. We further document heterogeneity in firm outcomes and show that the evidence is more ambiguous for expansionary shocks. Our analysis allows us to identify current knowledge gaps and worthwhile avenues for future research.

The real effects of banks’ corporate credit supply: a literature review
K. Mulier, O. Güler, M. Mariathasan, N. Okatan, Economic Inquiry (forthcoming)

(with Ozan Guler, Mike Mariathasan, and Nejat Okatan)

The sandwich game: Founder-CEOs and forecasting as impression management

We examine the use of positively biased forecasts by (non-)founder-CEOs as an impression management tactic vis-à-vis their existing investors. We hypothesize that founder-CEOs will strategically provide less positively biased forecasts to their investors than non-founder-CEOs. Using two independent samples with revenue forecasts reported to different venture capital investors and a causal chain scenario study consisting of two experiments, we find consistent support for our hypothesis. Our paper adds nuance to the dominant perspective on forecasting errors by theorizing and showing that inflated forecasts are not solely the result of cognitive bias but can be a deliberate, discretionary form of IM that takes into account the CEO’s trade-off between the social/financial costs versus benefits of providing more positive forecasts to investors.

Collewaert, V., Vanacker, T., Anseel, F., & Bourgois, D. (2021). The sandwich game: Founder-CEOs and forecasting as impression management. Journal of Business Venturing. https://doi.org/10.1016/j.jbusvent.2020.106075

Ban, Boom, and Echo! Entrepreneurship and Initial Coin Offerings

Drawing on institutional theory, we investigate the entrepreneurship implications of regulatory spillover. Regulatory spillover occurs when regulations in one country affect either the expected regulatory approach in another country and/or the entrepreneurial actions in another country. In the context of Initial Coin Offerings (ICOs), we theorize that a regulatory ban in countries (i.e., China, South Korea) causes a short-term increase in the number of low-quality ICOs in other countries and a long-term drop in the number of ICOs albeit with a higher average quality. We introduce new large sample quarterly data on ICOs from 108 countries and show results consistent with our theory.

Bellavitis, C., Cumming, D. J., & Vanacker, T. (Forthcoming). Ban, Boom, and Echo! Entrepreneurship and Initial Coin Offerings. Entrepreneurship Theory and Practice.

Corporate entrepreneurship, country institutions and firm financial performance

Although previous research shows that corporate entrepreneurship (CE) relates to firm performance differently across countries, there is little research on the country-level factors that explain these differences. Adopting an institutional perspective, we propose that home country intellectual property (IP) and employee protection institutions moderate the relationship between corporate entrepreneurship (CE) and firm performance. Examining 9642 European firms, we find that whereas internal CE is more positively correlated with firm performance in countries with less stringent IP protection and less stringent employee protection, external CE (venturing) is particularly negatively correlated with firm performance in countries with less stringent IP protection and more stringent employee protection.

Vanacker, T., Zahra, S. A., & Holmes, R. M. (Forthcoming). Corporate entrepreneurship, country institutions and firm financial performance. Journal of World Business.

Venture Capital, Credit, and FinTech Start-Up Formation: A Cross-Country Study

Why is a greater availability of venture capital (VC) and credit more (or less) effective in different countries for increasing start-up formations in new entrepreneurial industries, such as FinTech? In a new paper, forthcoming in Entrepreneurship Theory and Practice, we argue and show that with their established and globally diffused norms and practices, VC investors—but not banks—require a critical mass of FinTech entrepreneurship in a country to more positively influence FinTech entrepreneurship. Moreover, VC and credit markets are substitutes, especially in countries with more FinTech entrepreneurship. Our arguments and evidence show considerable consistency with the National Innovation Systems (NIS) framework.

Kolokas, D., Vanacker, T., Veredas, D., & Zahra, S. A. (Forthcoming). “Venture Capital, Credit, and FinTech Start-Up Formation: A Cross-Country Study.” Entrepreneurship Theory and Practice.

A gender financing gap: fake news or evidence?

Women-led businesses are less likely to raise venture capital than male-only businesses and the amounts that they raise are lower. Yet women-led businesses deliver better revenue performance and return on investment. So why are venture capitalists reluctant to invest in women-led businesses? One reason is that women entrepreneurs are over concentrated in sectors that are less attractive to investors and have a low presence in technology sectors. Another reason is the lower propensity of women entrepreneurs to seek venture capital. However, women who do approach venture capital funds are almost as likely as men to be successful in raising finance. Moreover, women-led businesses perform well in raising follow-on finance. And women business angels – a minority of all business angels – have a clear propensity to invest in women founders.

Rudy Aernoudt, Ampara De San José. Venture Capital, published online 31 March 2020.

Unleashing firms’ growth potential

For a long time, growth has been assumed to be the result of an optimal combination of the production factors of labour and capital. This article argues that growth of companies no longer depends on only those two factors, but also on a third one: i.e., intangibles, such as investment readiness, investors mindset and entrepreneurship. Tangibles are the necessary, but not sufficient condition. The current era of robotization, digitalization and disruptive innovation increases the importance of the intangibles. Therefore, regional policy should henceforth be reoriented towards those intangibles leaving behind the classical subsidy-oriented policy, focused on SMEs as such, without controlling for those intangibles. That is the only way to achieve that companies with a growth potential can succeed in becoming a scale-up company, and that lifestyle companies optimize their growth potential. Moreover, if support policies are designed on that basis, they might even bring former offshored companies back.

Rudy Aernoudt, Ekonimiaz, 2019, p. 134 – 156

Identifying Credit Supply Shocks with Bank-Firm Data: Methods and Applications

In a paper that is published this month in the Journal of Financial Intermediation, we demonstrate the importance of single-bank borrowers for the identification of credit supply shocks.

Current empirical methods to identify and assess the impact of bank credit supply shocks rely strictly on multi-bank firms and ignore firms borrowing from only one bank. Yet, these single-bank firms are often the majority of firms in an economy and most prone to credit supply shocks. We propose and underpin an alternative demand control (using industry–location–size–time fixed effects) that allows identifying time-varying cross-sectional bank credit supply shocks using both single- and multi-bank firms. Using matched bank-firm credit data from Belgium, we show that firms borrowing from banks with negative credit supply shocks exhibit lower financial debt growth, asset growth, investments, and operating margin growth. Positive credit supply shocks are associated with bank risk-taking behavior at the extensive margin. Importantly, to capture these effects it is crucial to include the single-bank firms when identifying the bank credit supply shocks.

H. Degryse, O. De Jonghe, S. Jackovljevic, K. Mulier, and G. Schepens. Identifying Credit Supply Shocks with Bank-Firm Data: Methods and Applications, Journal of Financial Intermediation, 2019, Vol. 40, 100813