My researches explore empirical questions in venture capital investment, corporate governance, and monetization strategy innovation.
Venture Capital Investment and the Role of Traction:
Evidence from Mobile Entrepreneurship
An ongoing debate is how Venture Capital (VC) investors choose startups based on different kinds of information available, with recent studies finding traction (i.e. early-stage performance metrics, such as sales or a user base) to be less important than other drivers of VC financing. This paper examines the causal impacts of startups’ traction on their selection for VC funding, as well as the use of capital raised through VC funding and the effects of VC funding in startups. Focusing on mobile app startups alleviates a survivorship bias and enables the use of actual traction data, such as downloads and revenues, for many comparable startups. To account for the endogeneity of traction, I exploit arguably exogenous congestion generated by non-monetizing mobile apps across app categories over time. The instrument quantifies how congested the mobile app ranking chart is, which in turn would negatively affect the visibility of startup’s mobile apps. The results show the importance of traction in not all but only some funding rounds, more particularly the causal effects of both downloads and revenues on series A funding but not on seed/angel funding. However, the funding rate responds more strongly to revenues than to downloads, suggesting that revenues may be more informative to VC investors. Exploiting cohort heterogeneity in the VC funding rates, I find the greater importance of management credentials relative to business models and traction in explaining the differences. Lastly, I find that the VC funding may lead to improved quality and a greater variety of mobile apps, suggesting its impacts on innovations, while I also find suggestive evidence of some risk-taking by poorly performing startups.
(February 2021)
Relative Performance Evaluation in CEO Turnovers:
Evidence from South Korea during the Financial Crisis of 2007-2008
This paper empirically examines whether corporate boards benchmark performance against peer firms to evaluate and fire CEOs. By evaluating against the peer CEOs, a rational board would be able to learn about relative difference between the current CEO and potential replacement CEOs given that the peer CEOs are ones the board could hire as a replacement CEO. For identification, this paper exploits the flight of capital from South Korea during the 2007-2008 global financial crisis. Instrumenting for peer performance is based on different degrees of exposure across firms to the market-wide capital flight which then induce different degrees of stock supply shocks. Capital structure left them vulnerable to the capital flight by different degrees depending on how much ownership had been held by foreign investors before the crisis. I find empirical evidence of relative performance evaluation that the boards condition on peer performance to some extent. The likelihood of CEO turnovers increased by 1.2% for every 1% increase in peer performance.
(March 2021)
Monetization Strategy Innovation in Mobile App Market
This paper explores a type of non-technological innovation, monetization strategy innovations in the mobile app market, and examines their adoption and impacts to better understand what types of apps choose which monetization strategies. This paper mainly exploits adoption of a novel monetization strategy, in-app currency. This paper finds suggestive evidence of positive peer effects within app category in adoption of the novel strategy and the association of the adoption decisions and profits with app ratings. Moreover, better performance by later entrant adopters relative to the early ones is to some degree driven by better app ratings of the late entrants. Across app categories, adoption of the novel strategy has been more common in some categories than others, and adopters do better than non-adopters in categories where the strategy is more popular. Throughout the paper, the results suggest that monetization innovations may not benefit all types of apps, which could be taken into consideration in designing policy programs to promote innovations.
(March 2021)