Lead Investor Research Articles

A Green Wave in Media, a Change of Tack in Stock Markets

This paper explores the impact of green sentiment in US media on financial markets. Using textual analysis with a dictionary-based approach, we retrieve several scores of attention, tonality and uncertainty in the coverage of environmental news of four major US newspapers. We consider various weighting schemes to account for the visibility and relevance of the text sources and several sets of newspapers to measure the possible impact of their editorial line. Our results establish that greater attention to environmental news in US media reduced the excess returns of carbon-intensive stocks and increased their volatility over the last decade, especially when the coverage was negative or uncertain. The opposite result holds for the most virtuous green assets. Restricting the corpus of texts to conservative newspapers mitigates the impact of the coverage. Overall, our findings illustrate how rising environmental concerns lead investors to shift their asset allocation.

Lead investors and information disclosure: A test of signaling theory by fuzzy‐set qualitative comparative analysis approach

This article aims to examine the complexity of lead investor's signaling by information disclosure in equity crowdfunding. We use 40 samples from a Chinese equity crowdfunding source to explore why lead investor influences followers' decision making and how lead investor signals effectively by using fuzzy‐set qualitative comparative analysis (fsQCA) approach. Our findings enrich the literature on the lead investors and syndicate by testing the complexity of signaling in equity crowdfunding, shed new light on investigating the decision‐making model of individuals at a disadvantage of information asymmetry, and offer insights into signaling strategically online.

Does investor attention to Islamic finance create spillover?

ABSTRACT This paper examines whether investor attention to Islamic finance creates spillover or not. The answer to this question is relevant to understanding whether the recent growth in Islamic Finance is due to an increase in fundamentals or is more to do with a market attention shock. We examine this question for three developed countries (France, the United Kingdom (the UK) and the United States of America (the USA)), four emerging countries (Saudi Arabia (SA)), the United Arab Emirates (the UAE), Pakistan and India), and the whole world. Our findings show that while the US and the UK lead investor attention to Islamic finance and spillover across the globe, India and Pakistan have experienced the greatest spillover from investor attention for both emerging and developed countries. Saudi Arabia and the UAE, on the other hand, play a somewhat minor role.

Early indicators of fundraising success by venture capital firms

We show how a venture capital firm's fundraising is affected by its investment choices. We investigate three leading indicators that are calculated from the types of investments the venture capital firms make: style drift investments, follow-on investments, and investments in which the venture capital firm is not the lead investor in the portfolio company. We find that these investment characteristics are associated with lower fundraising. Characteristics and the reaction of fundraising to characteristics are both moderately stable through time. We also find some evidence that information about investment characteristics is more important for fundraising during bad states of the world and that ex-ante characteristics are related to eventual exit outcomes and financial performance.

Female entrepreneurs and equity crowdfunding: the consequential roles of lead investors and venture stages

Previous research has found that female entrepreneurs are disadvantaged in traditional funding markets. Yet, whether the same conclusion can be drawn in the equity crowdfunding market has not yet been determined. Leveraging both stereotype content theory and warm-glow theory, and based on a data set drawn from 259 projects from three equity crowdfunding platforms in China between October 2014 and April 2019, this study empirically examines the underlying relationship between female entrepreneurs and equity crowdfunding. Using Poisson regression analysis, we find that female entrepreneurs are more likely to be funded through equity crowdfunding than their male counterparts. Moreover, we use the presence or absence of lead investors and venture stage (i.e., early versus late) as potential moderators. Our results reveal that while lead investors augment the financing advantage of female entrepreneurs in the equity crowdfunding market, this advantage is weakened in later-development-stage ventures. The findings of this research contribute to the equity crowdfunding and the female entrepreneurship literature by showing that an entrepreneur’s gender influences equity crowdfunding performance. Our findings also extend previous research by demonstrating that both lead investors and venture stage moderate the impact of gender in the equity crowdfunding market.

"I Invest by Following Lead Investors!" The Role of Lead Investors in Fundraising Performance of Equity Crowdfunding.

Psychological factors play a critical role in affecting investor decisions. This study explores how lead investors influence following investors psychologically, thus affecting fundraising performance of equity crowdfunding. We draw upon the signaling theory and observational learning theory to argue that following investors could be induced to invest in a project if they observe the proportion of funding by lead investors in the funding target to be high, that the lead investors have rich investment experience, and that the lead investors can offer help to the projects. To test our hypotheses, we analyze a sample of 215 projects from a Chinese equity crowdfunding platform. The results reveal that the proportion of lead investor investment in the funding target and their investment experience are positively related to fundraising performance. However, the help offered by lead investors toward the projects has no impact on funding performance. Theoretical and practical implications are discussed.

Marriage of Unequals? Investment Quality Heterogeneity, Market Heat, and the Formation of Status-Asymmetric Ties in the Venture Capital Industry

In this study, we investigate the emergence of status-asymmetric ties among venture capital firms. In particular, we highlight the venture’s performance trajectory as a powerful antecedent of upward-status asymmetries (in which a lower-status actor brings a higher-status alter into a venture) as well as downward-status asymmetries (in which a higher-status actor brings in a lower-status alter). We hypothesize that lower-status firms tend to bring higher-status alters into ventures on a better performance trajectory, whereas higher-status firms tend to bring lower-status alters into poorly performing ventures. Furthermore, we argue that these effects will be moderated by market heat, which affects whether investors would focus on the upside or downside of deals. We test our hypotheses in a longitudinal analysis of venture capital syndication patterns in the United States between 1990 and 2017. We find support for most of our predictions and document that the ability of lower-status lead investors to bring higher-status followers into good ventures is particularly accentuated in hot markets, which can heighten market participants’ concerns about missing good deals. We thus highlight the interplay between the internal and the external contexts in shaping the formation of status-asymmetric relationships.

Lead investor and Financing Performance on Equity Crowdfunding Platforms

Equity crowdfunding provides a new channel for enterprise project financing. I found that most equity crowdfunding projects in China have adopted the leader-follower investor paradigm, which is considered as a way to alleviate information asymmetry. To explore the impact of the lead investor on financing performance, based on the data of the equity crowdfunding platform from 2014 to 2020, I used OLS regression to conduct an empirical study. The results show that the existence of lead investors promotes equity crowdfunding performance, and the attention to projects plays a mediating role. Project risk weakens the positive effect of lead investors on financing performance. The study further found that if the lead investors are individuals instead of institutions, the financing performance is better. The lead investment amount and the information completeness of the leading investors have a positive effect on financing performance, while whether the leading investors use real names has no effect on financing results. Structural social capital, relational social capital, and regional social capital all play a positive role in promoting financing level, and the lead investment amount negatively regulates the positive effect of social capital on financing performance. Finally, I chose the propensity score matching (PSM) method to avoid endogenous problems, and then replaced the dependent variable and used logistic and probit models to ensure the robustness of the conclusions.

How lead investors build trust in the specific context of a campaign

PurposeThe purpose of this paper is to explore the role of trust in the unobservable decision-making process of lead investors and follow-on investors in the specific context of equity crowdfunding (ECF) campaigns.Design/methodology/approachThis work employs a case study approach. The author conducts a three-year inductive field study of Chinese ECF – AngelCrunch. The author gathered both campaign and platform-level data from the selected case covering a period of seven years from 2011 to 2018. The data set used for this study includes the characteristics of 189 online campaigns, 25 face-to-face interviews with the platform managers, early-stage investors and entrepreneurs, first-hand observations and quarterly reports on online campaigns supplemented with informal interviews with the authors for the reports.FindingsThe findings from this study provide early insights onto the unobservable decision-making process of ECF investors. It demonstrates that lead investors use both selective signalling information and physical interactions with the entrepreneurs to build competence and relational trust on which they rely for making an early pledge. It also shows that follow-on investors differ from lead investors in the process of building trust for decision-making. Furthermore, this work uncovers the role of ECF platforms in facilitating the process of building interpersonal trust for the decision making, with challenges to maintain the notion of platforms in raising a small amount of capital from a large crowd.Research limitations/implicationsThis study is constrained by the limited scale of qualitative elements available. The findings of the study have implications for platform managers, investors and policy makers.Originality/valueBuilding on entrepreneurial finance and trust theory, this work demonstrates how lead investors build competence and relational trust on which they rely to make an early pledge in the context of ECF. The perception of a lead investor and the commitment together with the selective and formative information by the entrepreneur/s are key in follow-on investors’ decision making. This study uncovers that crowdfunding enables additional and valuable information to be assessed by crowd investors to manage extreme risk and uncertainty occurred in early-stage investments. This work also demonstrates that virtual world has its limitations to build interpersonal trust for managing extreme risk.

The G20@10: Time to shift gears

ABSTRACT The article examines the role that the Group of Twenty (G20) has so far played in fostering progress towards achieving economically, socially, and environmentally sustainable global growth and development. It finds that, at present, the G20 as a group functions primarily as an informal policy-debating club. Therefore, considering the urgency of the global challenges we confront and the tremendous resources G20 members possess, it argues for those G20 members willing to do so to re-strengthen their engagement on the operational side of international cooperation and act again as a force of crisis management, as they did at the height of the 2007–2008 financial crisis. More specifically, the proposal is for willing G20 members to act as lead investors in strategically selected global mission-oriented projects. The article also discusses what might spark G20 members’ interest to play a more pro-active operational role and shows that it would simply be ‘realistic self-interest’.

The Role of Lead Investors in Fundraising Performance of Equity Crowdfunding: Evidence from China

The Role of Lead Investors in Fundraising Performance of Equity Crowdfunding: Evidence from China

“Success by Association”: The Impact of Venture Capital Firm Reputation Trend on Initial Public Offering Valuations

Organizational theory recognizes reputation as a central element to understanding the firm. Examining investor valuations of 1,676 initial public offerings (IPOs) in the United States from 1990 to 2011, we find that reputation transfer through an association of an IPO firm with a venture capital (VC) firm represents a resource whose value can increase/decrease over time depending on investors’ valuations of prior IPOs funded by a VC firm. We conclude that the impact of reputation transfer through association is not unidirectional but, instead, is to be viewed in the context of prior reputational development of organizations the focal firm is associated with. Furthermore, we find that three “transfer enhancers” can improve the impact of VC firm reputation transfer on IPO valuations, including the VC firm’s past experience intensity, the diversity of IPO experiences, and the number of prior syndicated IPOs involving the VC firm as a lead investor.

A paradox of embedded agency: Sustainable investors boundary bridging to emerging fields

This study provides additional insight into the paradox of embedded agency through an examination of investors' interests in sustainable business. According to the paradox, although actors are embedded in institutional fields, they may become agents of change. This research adds to existing literature by examining how varying degrees of embeddedness may affect change behaviors. In addition, this research considers the latter in a new venture investment context that: 1) distinguishes between individual, organizational, and hybrid organizational investor types, 2) perceives investors in a mature field crossing over to engage in or “boundary bridging” to emerging fields related to new industries and other mature fields, and 3) conceptualizes a change agent role as a mixed coalition of leaders and supporters rather than a single autonomous actor. By examining investors’ various roles in sustainable entrepreneurship, contributions are also made to the literature on sustainable entrepreneurship. Empirical tests of hypotheses use negative binomial regression analyses on a sample of 186 Crunchbase listed firms. Results find that the lead investors who choose sustainable start-ups over information technology start-ups are change agents, sometimes in syndicate coalitions that include other supportive embedded investors having differing motivations.

Beggars or choosers? Lead venture capitalists and the impact of reputation on syndicate partner selection in international settings

Abstract We investigate the importance of reputation for lead venture capitalists’ choice of international and domestic syndicate partners for domestic deals. Our study is based on a novel dataset of global syndicated investments covering the period 2005 to 2014 and comprising 46,101 triads among lead investors, syndicate partners, and portfolio firms. We find reputation to be more relevant in selecting cross-border co-investors than local co-investors. The results are consistent for our international and domestic reputation scores as well as for single reputation components such as equity invested, number of investments, or number of IPO exits. In addition, we show that the reputation of the lead investor matters in international syndicate partner selection. Highly reputed venture capitalists seem to follow an intricate decision model in which they carefully choose cross-border partners over domestic ones.

Follow-On Equity Crowdfunding

Equity crowdfunding (ECF) provides outside equity to unlisted and mainly early stage entrepreneurial firms and the UK is the leading ECF market. This paper investigates the determinants of first follow-on campaigns and of their probability of success for a sample of 790 firms that conducted an initial campaign on one of the three major UK platforms – Crowdcube, Seedrs, and SyndicateRoom – over the 2011-2017 period. Among these, some 106 sample firms conducted a first follow-on campaign. Our two stage Heckman results show that the probability of conducting a first follow-on campaign is positively impacted by novel platform and campaign characteristics such as overfunding on the initial campaign, campaigns with a lead investor, and those with a nominee account structure protecting all crowdfunding shareholder rights. The paper investigates for the first time the determinants of a successful first follow-on campaign. The probability of the latter is positively impacted by the degree of overfunding on the initial campaign and by the related social capital that initial campaign success garners. The probability of success also increases with the ratio of the initial capital raised relative to the follow-on target capital. The implication is that the capital raised in the initial campaign acts as a reference point for the follow-on target capital.

How Do Investors Accumulate Network Capital? Evidence from Angel Networks

We use the angel investor market to examine the effect of performance on the network connectedness of individual angel investors. We collect data on start-ups and angel investors from CrunchBase, the largest crowd-sourced database on start-ups and investors, and AngelList, the leading online fund-raising platform for start-ups. We find that angels that successfully lead a portfolio company to the next financing stage, especially from seed stage to series A stage, experience an increase in both the quantity and quality of their co-investment connections relative to their unsuccessful peers, and are rewarded with more new investment opportunities, both as lead investors and as participants. Success begets more success, making it more likely that other seed-stage portfolio companies of a successful angel also progress to the next financing stage. Finally, successful performance also expands the online followership of angels, and makes it more likely that their existing followers establish a new co-investment connection. Overall, our results highlight that reputation for good performance enhances the network capital of angel investors.

Reinvestment and Global Stock Returns

This article examines the relationship between a country’s aggregate dividends and its equity market returns. In many countries, the change in the aggregate dividend payout rate is negatively correlated with returns, and in some countries there is no significant relationship between dividend payout rate changes and equity market returns. However, there are no countries in which the change in the dividend payout rate is significantly positively related to returns and the cross-country relationship between dividend payout rate changes and returns is significantly negative. The implication is that at the country level, dividend payout rate increases represent a decrease in the country’s investment opportunity set and are accordingly interpreted by investors as bad news, as evidenced by the finding that the change in a country’s dividend payout rate is negatively related to changes in analysts’ expectations of long-term earnings growth for that country. Furthermore, dividend payout rate increases lead investors to pay less per unit of future expected earnings, as evidenced by the result that the change in a country’s dividend payout rate is positively correlated with the change in the country’s equity risk premium. A country’s long-term equity market performance is also related to its dividend payout policy. Specifically, over different holding periods, countries with lower dividend payout rates have higher real long-term returns than countries with higher dividend payout rates, even after allowing for the reinvestment of dividends (either into equity or into TIPS).

Hedge Funds and Corporate Misreporting

We examine the roles of hedge funds in corporate financial misreporting using a unique dataset of private investments in public equity (PIPEs) transactions. We show that PIPE issuers are more likely to engage in financial misreporting when a hedge fund is the lead investor in the offering. We further find hedge funds do take actions to protect themselves from such risk by requesting significantly more contractual protections. Our results are robust after carefully controlling for the endogeneity issue using the control function approach and the propensity score matching method.

Syndication in Equity Crowdfunding: Effects of Intellectual Capital on Trust in Lead Investors

Contributing to equity crowdfunding campaigns is a risky endeavor. Making things worse, few platform operators and hardly any non- professional contributors perform proper due diligences of startup...

Attracting Early‐Stage Investors: Evidence from a Randomized Field Experiment

ABSTRACTThis paper uses a randomized field experiment to identify which start‐up characteristics are most important to investors in early‐stage firms. The experiment randomizes investors’ information sets of fund‐raising start‐ups. The average investor responds strongly to information about the founding team, but not to firm traction or existing lead investors. We provide evidence that the team is not merely a signal of quality, and that investing based on team information is a rational strategy. Together, our results indicate that information about human assets is causally important for the funding of early‐stage firms and hence for entrepreneurial success.