Essays on Venture Capital Syndication and the Informational Efficiency of the Corporate Bond Market

Abstract

The first two essays in this dissertation examine the phenomenon of venture capital syndication, or co-investment. In the first essay, I construct measures of syndicate heterogeneity and find that when venture capital firms from different geographic regions syndicate their investments, this has a strong positive impact on the company receiving the financing. However, I find no equivalent positive impact from heterogeneity in terms of organizational structure of the venture capital firms. My results are robust to selection effects and are consistent with the notion that syndicate partners add value through their access to different business networks. In the second essay, I find that syndication is positively associated with both the investment amount and the information asymmetries between the entrepreneur and the venture capitalist(s). I also find that syndication is more prevalent in Boston, California, and the Pacific Northwest. After controlling for these factors, I still find that syndication rates cycle and argue that current elevated syndication rates are a symptom of overinvestment by the venture capital community. In the third essay, I find that a firm's traded corporate bonds partially anticipate its stock price movements by one to three months. A decline of 10% over three months of a firm's bonds is associated with an ensuing cumulative stock-price decline of 3% to 6%. The effect is non-linear, with bond price declines signaling lower future stock prices, but bond price increases having no effect. Possible explanations include the focus of bond analysts on negative results, the use of credit-default swaps as venues for informed trading (including insider trading), and the influence of noise traders on equity prices.