Corporate Finance

Schwerpunkte der Forschungsgruppe Corporate Finance sind das Verhalten und der Einfluss von institutionellen Investoren im Unternehmenskontext, die Unternehmensbewertung und die Kapitalstruktur.

Mitglieder der Forschungsgruppe

Ausgewählte Publikationen

Foreign bias in institutional portfolio allocation: The role of social trust

Wolfgang Drobetz, Marwin Mönkemeyer, Ignacio Requejo, Henning Schröder
Journal of Economic Behavior & Organization | 10/2023
We study the role of social trust in the equity allocation decisions of global investors using a large sample of institutionally managed portfolios of 8,088 investors from 33 countries over the 2000 through 2017 period. The negative relationship between social trust and foreign bias suggests that institutional investors from high-social trust countries are less prone to underinvesting in foreign equity. Our results provide credence to an information-based explanation, indicating that social trust reduces foreign bias by compensating for the lack of information about foreign stock markets. Moreover, the effect of social trust on foreign bias is stronger if host-country institutions are weak, while it vanishes when the host country is characterized by strong institutions. The informal institution of social trust compensates for the lack of well-functioning formal country-level institutions in international portfolio decisions. Finally, the allocation effect resulting from social trust is different from “blind” trust. The portfolios of high-trust investors exhibit higher cross-country diversification and an enhanced portfolio risk-return trade-off.

Institutional blockholder networks and corporate acquisition performance

Gishan Dissanaike, Wolfgang Drobetz, Marwin Mönkemeyer, Henning Schröder
Academy of Management Proceedings | 07/2023
We examine 17,207 U.S. mergers and acquisitions by public firms over the 1980–2019 period and find that the acquirer abnormal announcement returns are higher for firms held by more central investors in the network of active institutional blockholdings. This finding is robust to firm and deal characteristics, and it also extends to alternative network and return measures. To provide evidence on causality, we exploit extreme industry returns that lead to plausibly exogenous variation in investors’ monitoring ability. The positive effect of blockholder centrality on acquirer abnormal announcement returns only exists in information-sensitive (i.e., private) deals and only among institutions that have a comparative advantage in exploiting monitoring information. Our findings suggests that institutional investors obtain an information advantage through the network, which increases their monitoring ability.

Institutional investors and corporate environmental costs: The roles of investment horizon and investor origin

Wolfgang Drobetz, Sadok El Ghoul, Zhengwei Fu, Omrane Guedhami
European Financial Management | 06/2023 | Forthcoming
Using a large international dataset that quantifies corporate environmental costs, we analyze the influence of institutional investor ownership, particularly investment horizon and investor origin, on the monetized environmental impact generated by their investee firms. Institutional investor ownership is negatively related to corporate environmental costs. This effect is driven by long-term foreign institutional investors, especially investors from advanced economies. Foreign institutional investors transfer higher norms and standards from their home countries to their investee firms abroad. Corporate environmental costs are negatively correlated with firm valuation and positively correlated with the firm’s cost of equity. To the extent that corporate environmental costs are not already reflected in conventional ESG ratings, our results shed new light on the role of institutional investors in shaping corporate environmental impact.

Team networks and venture success: Evidence from token-financed startups

Wolfgang Drobetz, Kathrin Rennertseder, Henning Schröder
HFRC Working Paper Series | Version 05/2023
Evidence shows that social network structures drive important economic outcomes. Building on social network theory, this study is the first to analyse the impact of team networks on venture success. Using information about team affiliations for a sample of token-financed startups, we model networks based on team interlocks across firms. Ventures with well-connected teams exhibit higher market valuations and higher token market liquidity. These effects seem to be driven by network-induced information and communication advantages. Specifically, we show that networks matter most when publicly available information is limited. The findings remain robust after controlling for non-team networks and endogeneity.

The hurdle-rate effect on patents: Equity risk premium and corporate innovation by public firms in the U.S., 1977-2018

David B. Audretsch, Wolfgang Drobetz, Eva Elena Ernst, Paul P. Momtaz, Silvio Vismara
HFRC Working Paper Series | Version 05/2023
Schumpeterian arguments of “creative destruction” predict that innovation is countercyclical. However, empirical findings demonstrate the contrary. We apply corporate finance principles to innovation economics and propose a “hurdle-rate theory of inventive procyclicality.” Macroeconomic episodes of high equity risk premia (ERP) stifle innovation because many R&D projects do not pass corporate budgeting decisions when discount rates are high. Consistent evidence suggests that the hurdle-rate effect is less pronounced in firms with financial slack, institutional ownership with long-term orientation, and weak product-market competition. In an attempt to reconcile the procyclical evidence with Schumpeter’s countercyclical theory, we show that firms engaging in exploratory search suffer less during high-ERP episodes than those focusing on exploitative search, and patents developed during high-ERP periods have a higher technological impact and receive significantly more forward citations. Finally, we exploit the staggered variation in state-level R&D tax credits in difference-in-differences analyses to establish a causal link between the ERP and patent value.

The financial and non-financial performance of token-based crowdfunding: Certification arbitrage, investor choice, and the optimal timing of ICOs

Niclas Dombrowski, Wolfgang Drobetz, Lars Hornuf, Paul P. Momtaz
HFRC Working Paper Series | Version 04/2023
What role does the selection of an investor and the timing of financing play in initial coin offerings (ICOs)? We investigate the operating and financial performance of ventures conducting ICOs with different types of investors at different points in the ventures’ life cycle. We find that, relative to purely crowdfunded ICO ventures, institutional investor-backed ICO ventures exhibit poorer operating performance and fail earlier. However, conditional on their survival, these ventures financially outperform those that do not receive institutional investor support. The diverging effects of investor backing on financial and operating performance are consistent with our theory of certification arbitrage; i.e., institutional investors use their reputation to drive up valuations and quickly exit the venture post-ICO. Our findings further indicate that there is an inverted U-shaped relationship for fundraising success of ICO ventures over their life cycle. Another inverted Ushaped relationship exists for the short-term financial performance of ICO ventures over their life cycle. Both the fundraising success and the financial performance of an ICO venture initially increase over the life cycle and eventually decrease after the product piloting stage.

Performance measurement of crypto funds

Niclas Dombrowski, Wolfgang Drobetz, Paul P. Momtaz
Economics Letters | 04/2023 | Forthcoming
Crypto funds (CFs) are a growing intermediary in cryptocurrency markets. We evaluate CF performance using metrics based on alphas, value at risk, lower partial moments, and maximum drawdown. The performance of actively managed CFs is heterogenous: While the average fund in our sample does not outperform the overall cryptocurrency market, there seem to be some few funds with superior skills. Given the non-normal nature of fund returns, the choice of the performance measure affects the rank orders of funds. Compared to the Sharpe ratio, the most commonly applied metric in practice, performance measures based on alphas and maximum drawdown lead to diverging fund rankings. Depending on their ranking of preferences, CF investors should thus consider a bundle of metrics for fund selection and performance measurement.

Decentralized finance, crypto funds, and value creation in tokenized firms

Douglas Cumming, Niclas Dombrowski, Wolfgang Drobetz, Paul P. Momtaz
HFRC Working Paper Series | Version 05/2022
Crypto Funds (CFs) represent a novel investor type in entrepreneurial finance. CFs intermediate Decentralized Finance (DeFi) markets by pooling contributions from crowd-investors and investing in tokenized startups, combining sophisticated venture- and hedge-style investment strategies. We compile a unique dataset combining token-based crowdfunding (or Initial Coin Offerings, ICOs) data with proprietary performance data of CFs. CF-backed startup ventures obtain higher ICO valuations, outperform their peers in the long run, and benefit from token price appreciation around CF investment disclosure in the secondary market. Moreover, CFs beat the market by roughly 2.5% per month. Their outperformance is persistent, suggesting that CFs deliver abnormal returns because of skill, rather than luck. These performance effects for CFs and CF-backed startups are driven by a fund’s investor network centrality. Overall, our study paves the way for research on what some refer to as the “crypto fund revolution” in entrepreneurial finance.