Application of new venture-capital-investing decision-making-mechanism in education

Working paper; version dated July 12, 2006We have theoretically developed New Venture Capital Investing Decision Making Mechanism (NVCIDMM) for joint evaluation of the probability of success of business plans and proposing management teams. Using the efficient market theory we prove that the proposed mechanism is better than the currently used ones. We have administered several business investment games with student in class. The results show that the developed mechanism is better than the existing venture capital decision making mechanisms. We propose a student run VC fund to be created. It would have the following positive externalities: First: The creation of the student run VC fund would allow in-depth empirical evaluation of the applicability of the proposed NVCIDMM mechanism; Second: The fund is theoretically better methodology for applicable learning by the students. We also substantiate a proposal for creation of university incubators in the same institutions. This will allow the students to participate on both sides of the investment process of venture capital as investors and as entrepreneurs

How Does Law Affect Finance? An Empirical Examination of Tunneling in an Emerging Market

This paper documents that law affects finance in emerging markets through the methods used by controlling shareholders to “tunnel” wealth out of the firm. We find that Bulgarian securities law enabled financial tunneling via dilution and freeze-out tender offers. During the period 1999- 2001, about two-thirds of the 1,040 firms on the Bulgarian Stock Exchange were delisted. Freeze-out tender offers for minority shares averaged about 25% of the shares’ intrinsic value. Bulgarian securities law changes in 2002 made financial tunneling more costly for controlling shareholders. Subsequent increases in stock market valuations and liquidity suggest that controlling shareholders have shifted from financial tunneling to less value-destroying methods, such as transfer pricing, to extract wealth from firms.Tunneling, freeze-out, controlling shareholders, appraisal rights, preemptive rights

How Does Law Affect Finance? An Empirical Examination of Tunneling in an Emerging Market

This paper documents that law affects finance in emerging markets through the methods used by controlling shareholders to “tunnel” wealth out of the firm. We find that Bulgarian securities law enabled financial tunneling via dilution and freeze-out tender offers. During the period 1999- 2001, about two-thirds of the 1,040 firms on the Bulgarian Stock Exchange were delisted. Freeze-out tender offers for minority shares averaged about 25% of the shares’ intrinsic value. Bulgarian securities law changes in 2002 made financial tunneling more costly for controlling shareholders. Subsequent increases in stock market valuations and liquidity suggest that controlling shareholders have shifted from financial tunneling to less value-destroying methods, such as transfer pricing, to extract wealth from firms.http://deepblue.lib.umich.edu/bitstream/2027.42/40128/3/wp742.pd

The selling of put derivatives by firms for shareholder wealth and information signaling enhancement

Working paper; version dated November 5, 200

How does law affect finance? An examination of equity tunneling in Bulgaria

Draft version dated May 2010 deposited in SSRN. Final version, published in Journal of Financial EconomicsWe model and test the mechanisms through which securities law affects tunneling and tunneling affects firm valuation. In 2002, Bulgaria adopted securities law changes which limit two forms of equity tunneling - dilutive equity offerings and freezeouts. We document that following the change, minority shareholders participate equally in secondary equity offers, where before they suffered severe dilution; freezeout offer prices quadruple; and Tobin's q values rise sharply for firms at high risk of tunneling. At the same time, return on assets declines for high-equity-tunneling-risk firms, suggesting that controlling shareholders partly substitute for reduced equity tunneling by engaging in more cash-flow tunneling. We thus present evidence on (i) the importance of legal rules in limiting equity tunneling, (ii) the role of equity tunneling risk as an important factor in determining equity prices; and (iii) substitution by controlling shareholders between different forms of tunneling

Synthetic repurchase programs through put derivatives: theory and evidence

A Synthetic Repurchase is an open market share repurchase program enhanced with sales of put derivatives on the firm’s own stock. Microsoft, in 1999, using a synthetic repurchase program sold put derivatives on its own stock and received $766 million in premiums and, at the same time, signaled that it is a good-quality company and certified its future earnings. I present theoretical rationale that explains why a synthetic repurchase program provides an efficient signal about a firm’s future prospects and how it establishes a separating equilibrium between good and bad firms. I also postulate that the signal provides quality certification about the firms’ future prospect. A sample of all companies that are known to have sold put derivatives was collected by searching 10-K and 10-Q statements published between January 1988 and January 2000. The sample includes the 53 identified companies that have initiated synthetic repurchase programs. I find empirical confirmation of the signaling hypothesis for synthetic repurchases. Event study results empirically confirm the theoretical hypothesis that the initiation of a synthetic repurchase program provides a positive signal to the market. Also, the empirical results confirm the theoretical hypothesis that the termination of a synthetic repurchase program is a negative signal to the market. The market reacts positively to the initiation of a synthetic repurchase program, and negatively to its termination. I also performed an EPS analyst forecast revisions event study with very similar results, which also confirm the signaling hypothesis of asymmetric information.. Results also show a positive and statistically significant 11.7% book-to-market and size-adjusted buy-and-hold abnormal average annual return. In addition, I find a significant improvement in various measures of the financial profiles of the firms in the sample subsequent to the put derivative sale. Finally, I observe that these firms have higher earning, R & D expenditures, and cash flows as compared with two industry-and-size-matched control samples of rival firms with and without repurchase programs respectively. Risky R & D expenditures force a firm to initiate synthetic repurchase programs in order to signal the market about their expectation of good future EBIT figures.Ph.D., Business and Management -- Drexel University, 200

Developing new understanding of how global talent flow impact individual and firm performance by using big data

Drawing on human capital theory, we explore the impact of global mobility on individuals and their employing firms. We also investigate the role of cultural distance between workers who move across country borders and the local culture, and the role that HRM may play to improve capitalizing on global talent mobility. We use a big data set comprising the entire population in one country, including about 30,000 expatriates from 143 countries employed by 15,000 firms, over 11 years of data covering about 100,000 observations on expatriates and 80,000 on their firms. Our findings support the existence of positive impact of global firms on performance (6.7% higher revenues after labor costs) and individuals' wages (10%–20% higher salaries). Both relationships are statistically and economically significantly influenced by cultural distance for the performance of global firms, leading to HRM implications.publishedVersio

Detecting anomalies in heterogeneous population-scale VAT networks

Anomaly detection in network science is the method to determine aberrant edges, nodes, subgraphs or other network events. Heterogeneous networks typically contain information going beyond the observed network itself. Value Added Tax (VAT, a tax on goods and services) networks, defined from pairwise interactions of VAT registered taxpayers, are analysed at a population-scale requiring scalable algorithms. By adopting a quantitative understanding of the nature of VAT-anomalies, we define a method that identifies them utilising information from micro-scale, meso-scale and global-scale patterns that can be interpreted, and efficiently implemented, as population-scale network analysis. The proposed method is automatable, and implementable in real time, enabling revenue authorities to prevent large losses of tax revenues through performing early identification of fraud within the VAT system.Comment: 14 pages, 5 figures, 3 table

Why Do Financial Intermediaries Buy Put Options from Companies?

In the 1990s, companies collected billions in premiums from peculiarly structured put options written on their own stock while almost all of these puts expired worthless. Buyers of these options, primarily �nancial intermediaries, lost money as a result. Although these losses might seem puzzling, by offering to buy put options from better informed parties, intermediaries receive private information about the issuing company. We fi�nd that the magnitude of changes and structural breaks in the stocks' �price trends and volumes around the put sales indicate that the intermediaries were indeed acting on this information and potentially made hundreds of billions of dollars