The returns of business angel investments and their major determinants

This paper provides evidence on the performance of business angels\u2019 investments, using a unique data-set covering a representative sample of the main actors in the Italian informal venture capital market. An econometric analysis examines the returns on business angels\u2019 investments and their major determinants, making reference to an original set of independent variables. Whereas previous empirical studies have hypothesised linear relationships between the explanatory variables and the performance of informal venture capitalists\u2019 investments, this work tests different functional forms, both linear and non-linear. The main findings are as follows: (1) the relationship between experience and internal rate of return (IRR) is U-shaped and significant; (2) the widely accepted expectation that investments with a short holding period earn a lower IRR is confirmed by quantitative data; (3) an original explanatory variable \u2013 rejection rate \u2013 is put into the model and its impact on business angels\u2019 performance is positive, non-linear and significant; (4) the final overall econometric model shows relevant explanatory power, with an R-squared close to 35%. The outcomes of the empirical analysis performed in this study allow the identification of new and concrete insights into possible public policy interventions aimed at stimulating the informal venture capital industry and, therefore, entrepreneurship inside the economic system

The Performance of Angel-Backed Companies

We provide first-time evidence of the post-investment performance and survivorship profile of angel-backed companies. Using a unique database of 111 angel-backed companies that received angel investments between 2008 and 2012 and at least 3 years of post investment financial data, we show that both the performance and the probability of survival of investee companies, are positively affected by the presence of: 1) angel syndicates and 2) by the hands-on involvement of business angels. Differently, the lack of angel experience and the structure of equity provision negatively affect the development of new ventures. Our results provide insights on the contribution of angel investors to the development of new ventures

The performance of angel-backed companies

We provide empirical evidence of the post-investment performance and survivorship profile of angelbacked companies, filling a long-standing gap within the entrepreneurial finance literature. Using a unique database of 111 angel-backed companies that received angel investments between 2008 and 2012 and at least 3 years of post-investment financial data, we develop an innovative performance metric and show that the performance and the probability of survival of investee companies are positively affected by the presence of angel syndicates and the hands-on involvement of business angels, while they are negatively related to the intensity of angel monitoring and the time structure of equity provision. Our results are robust to several endogeneity tests and provide insights on the multifaceted contributions of angel investors to the performance and survival of new ventures

The Role of Angel Syndicates on the Demand and Supply of Informal Venture Capital

The recent explosion of the informal venture capital is stimulating finance scholars to deeply investigate the major determinants, characteristics and possible implications of this phenomenon within the start-up ecosystems. The rising literature on business angels (BAs) still misses to adequately cover many investigation areas, such as the operations and the role played by the different typologies of BA networks (BANs) and the valuation of the contributions provided by BAs to the performance of the angel-backed companies. The contributions of Bonini et al. (2018, 2019) are part of the ongoing debate on these two research areas that have not yet been exhaustively explored. The two papers show that the affiliation to an angel community affects BAs\u2019 investment decisions, though it doesn\u2019t seem to have a significant impact on the survival and profitability of the funded ventures. On the contrary, by co-investing in an angel syndicate, BAs may enjoy risk- and information-sharing benefits that structurally affect both their investment practices and the performance of the funded ventures. Also, the BAs\u2019 willingness to play an active role does have a positive impact on angel-backed companies\u2019 survival and growth. Finally, the intensity of BAs\u2019 soft monitoring seems negatively related to the performance of the funded ventures because of the impact on the trust-based entrepreneur\u2013 angel relationship. However, angel communities might be able to decrease and distribute within the network the need for individual monitoring while increasing members\u2019 confidence in the angel investments

SUBJECTIVE VALUATION AND TARGET PRICE ACCURACY

In this paper, we analyze how subjective adjustments to baseline models by analysts a®ect the forecasting accuracy. For a panel of analyst reports, we show that target price forecasts that deviate signi¯cantly from simple multiple-based pseudo-target prices are (ex-post) more accurate. By controlling for various stock and broker characteristics, we also demonstrate that our results are not driven by the degree of sophistication of the valuation models. Furthermore, we show that investors know about this increased informativeness of forecasts as the abnormal market return around target price revisions is signi¯cantly higher if analysts deviate from simple pseudo-target prices when issuing their forecasts

RISK AND PERILS IN LBO TRANSACTIONS

In this study, the risks and perils arising from LBO transactions are considered. By focusing attention on 2,450 deals, for which we compare the performance achieved before and after the deal, our study adds to previous literature that has investigated the post-LBO operating performance and the factors which can determine the success of those deals. In particular, we confirm the hypothesis of the peril of assets stripping, even if we find evidence that the presence of private equity, among other factors, can help to mitigate that issue. We find evidence that, especially in the short term, enterprises suffer from a slight deterioration in operating performance compared to their situation before the buyout. Moreover, under specific circumstances, enterprises experience a slight improvement in the ability to generate cash. Finally, we find positive evidence about the presence of private equity investors, which through their governance are mainly able to promote the growth of firms, as well as to increase the capability to generate cash, together with the hypothesis to generate positive effects on the level of employment. At the same time, we find also evidence that the presence of private equity investors is related in some cases to distress for firms involved in LBO transactions

Investment Banking, the Certification Effect and M&A Deals: an Event Study approach

Several studies have found the existence of a relationship between the role of investment banks appointed as advisors in M&A deals and the yields earned by their clients. Traditionally this relationship is fostered by the ability of the leading investment banks to arrange and structure the best deals \u2013 i.e. the Superior Deal Hypothesis \u2013 and by the \u201ccertification effect\u201d, namely that their presence provides assurance to the capital markets where are traded the companies involved\u2013 i.e. the Certification Effect. Our study also investigates the strength and direction of this relationship before and after Lehman Brothers collapse. The analysis, which uses an original composite metric in order to measure the reputation variable, is focused on the transactions that took place between listed companies in two time frames specifically pre and post the Lehman Brothers bankruptcy. The total sample is composed of 229 transactions, divided into 161 and 68 observations, pre and post Lehman respectively. The analysis conducted allows us to separate the Superior Deal Hypothesis from Certification Effect. On evidence, after the Lehman default, the wealth of shareholders involved (both relating to the targets and acquirers) is significantly influenced by the reputation of the investment banks which acted as advisors. Conversely, before the start of the financial turmoil in September 2008, no significant evidence has been found. The analysis conducted suggests that subsequent to the Lehman Brothers collapse, the certification effect has been playing a crucial role in shareholders\u2019 choice