Essays in Corporate Finance

Abstract

This dissertation consists of two essays. The first essay documents a significant negative relationship between policy uncertainty and venture capital (VC) investment in startups across emerging venture capital markets (i.e., outside the United States). The adverse effect of policy uncertainty is exacerbated for younger and early-stage startups. By contrast, the effect is attenuated for startups that have headquarters in cities with a high concentration of global venture capital investment or in countries with more developed stock markets. However, the effect is not sensitive to the type of lead venture capital firm investing in the startup. Using close national elections and term limits to alleviate endogeneity concerns, I find that the baseline results continue to hold. Furthermore, I also find that policy uncertainty reduces the amount of cross-border VC investment. Finally, this study provides evidence that uncertainty increases the number of financing rounds, decreases the fraction of investment amount during the first round, and reduces the likelihood of successful exit through acquisition.

The second essay examines the effect of having board members with venture capital experience (i.e., VC directors) on executive compensation finds that such directors are associated with greater CEO and CFO risk-taking incentives (i.e., vega) and pay-for-performance sensitivity (i.e., delta). Such increases in vega and delta are achieved by increasing the share of option compensation at the expense of cash compensation. We also show that VC directors increase excess CEO compensation and total CEO compensation. Using Regulation S-K requirement to disclose attributes of nominated directors as an instrument, we show that these results are causal.