Topic: Unleashing Innovation
Speaker: Xiaoyun Yu, Associate Professor of Finance, Kelley School of Business, Indiana University
Date: April 23rd, 2014 (Wed.)
Time: 1:00-2:30pm
Location: Building 4, Room 101
Language: English
Abstract:
Using a sample of venture capital (VC)-backed initial public offering (IPO) firms, we study the impact of financial intermediaries’ tight leash on entrepreneurs’ innovation productivity. We find IPO firms are significantly less innovative when VCs keep a tighter leash on them by interfering with their development more frequently—as measured by a larger number of VC financing rounds. To establish causality, we exploit the plausibly exogenous variation in the frequency of direct flights between VC domiciles and IPO firm headquarters that are due to airline restructuring. Our identification tests suggest a negative, causal effect of VC staging on firm innovation. We further show that staging is more detrimental to firm innovation when innovation is more difficult to achieve, when IPO firms operate in more competitive product markets, and when VCs are less experienced with the industry to which their entrepreneurial firms belong. Our findings suggest that excessive interference by financial intermediaries impedes innovation, and shed light on a previously under-recognized adverse consequence of VC stage financing.
About the speaker:
Xiaoyun Yu is an Associate Professor of Finance in Kelley School of Business at Indiana University. Professor Yu received her Ph.D. in Finance from Carlson School of Management at University of Minnesota and M.B.A. from Southern Illinois University. Yu’s current research interests focus on theoretical and empirical corporate finance, security design, IPOs, financial institutions and systems, and political economy of finance. Her research has been published in several leading academic financial journals, such as Journal of Finance, Review of Financial Studies and Journal of Financial and Quantitative Analysis.
