Job Market Paper

In this study, I examine whether the public peer information environment has spillover effects on private firm capital raising and when the public peer information environment matters most.  Private firms today raise large amounts of private equity and venture capital financing from investors while disclosing much less than their public firm counterparts.  Legal scholars have proposed that this phenomenon is explained in part by private firms free-riding on information spillovers from the disclosures of their public peers, which assist private equity investors in firm valuation.  Consistent with this argument, I find that private firms with close publicly traded peers receive larger equity financing deals than private firms without (or with fewer) public peers holding the percent equity stake acquired constant.  Additionally, I find that the effect of public peers on private firm capital raising is largest (a) for private firms with less firm-specific information, (b) for leveraged buyouts and majority investors, (c) for investors that are less familiar with the private firm and its industry, and (d) for public peers with higher quality information environments characterized by lower information uncertainty.  Lastly, I investigate how cost of capital free-riding affects a private firm's life cycle and find that private firms with more publicly traded peers raise more capital in the private markets prior to going public.  I interpret these results as evidence that increased public peer information is associated with lower costs of capital in the private equity market, and this effect varies predictably in the cross-section with characteristics of the private firms, investors, and public peers involved.

Working Paper with Jennifer Blouin and Allison Nicoletti

This paper examines the quality of private firms that raise capital through de-SPAC transactions.  Paycheck Protection Program (PPP) loans were intended for firms that did not have access to external capital, meaning that private firms that were about to raise capital through a de-SPAC transaction were not the target audience of this government program.  Thus, we infer that obtaining a PPP loan shortly before going public through a de-SPAC transaction reveals that the firm is of poorer quality.  If SPACs truly merge with lower quality firms, then we conjecture that these firms may have made greater use of the PPP funding than other private firms with similar access to capital.  We show that private firms that later raised capital through a de-SPAC transaction disproportionately tapped the PPP for loans relative to their private firm counterparts that went on to fundraise through traditional IPOs or PE/VC financing over the same period.  Also, SPAC PPP loan recipients received larger loans, borrowed from banks with worse screening practices, and repaid their loans more often.  We also find that SPAC PPP loan recipients that eventually repaid their loans both underperformed and received greater media coverage, suggesting that media scrutiny might explain why these firms chose to repay their loans.  Our findings suggest that concerns regarding SPAC mergers’ poor reputations may be warranted as these firms appear to have disproportionately accessed funds meant for firms with less access to external capital.