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.http://deepblue.lib.umich.edu/bitstream/2027.42/40128/3/wp742.pd

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

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

External complexities in discontinuous innovation-based R&D projects::Analysis of inter-firm collaborative partnerships that lead to abundance

This is the author accepted manuscript. The final version is available from Elsevier via the DOI in this recordAs a discontinuous technology, nanotechnology is a highly intensive research and development (R&D) field with a high level of interaction between actors across sectors and international borders. This paper analyses the external complexities that influence the key dimensions of collaborative partnerships in discontinuous innovation-based nanotech R&D projects across Europe. Drawing on theories of inter-organizational partnerships, we examine the external determinants of size, mechanism, strength, and duration of the cooperative engagements, while controlling their innovative capacity, venture capital (VC) participation, and organizational size. We used mixed research methods to utilize both secondary and primary data, which were derived from the BvD Orbis database, to initially examine nanotech companies and then merged with our survey of 97 top executives and senior administrators of nanotech R&D projects across 12 European countries. Using multiple and logistic regression models, we show that a predictable legal system, a high level of tolerance for uncertainty, the prevalence of feminine values, geographical and functional nearness to key partners, high level of export demand for high-tech products, and periods of expansionary economic policies all simplify the complexities in the external environment of nanotech R&D projects. This simplification facilitates highly valuable and long-term inter-firm relationships, producing optimal partnership size with an effective organizational structure. This leads to abundance – the securing of industrial patents and/or the establishment of new product developments