what do entrepreneurs pay for venture capital affiliation this study empirically evaluates the certification and value added roles of reputable venture capitalists vcs using a novel sample of entrepreneurial start ups with multiple financing offers i analyze financing offers made by competing vcs at the first professional round of start up funding holding characteristics of the start up fixed offers made by vcs with a high reputation are three times more likely to be accepted and high reputation vcs acquire start up equity at a 10 14 discount the evidence suggests that vcs extra financial value may be more distinctive than their functionally equivalent financial capital these extra financial services can have financial consequences a central issue for early stage high tech entrepreneurs is obtaining external resources when the assets of their start up are intangible and knowledge based particularly for entrepreneurs without an established reputation convincing external resource providers such as venture capitalists vcs to provide financial capital may be challenging the literature contains two main lines of research for overcoming this problem one research stream has concentrated on designing institutional structures to permit financing early stage ventures this contractual and monitoring based approach is aimed at solving potential agency problems between investors and entrepreneurs e g admati and pfleiderer 1994 lerner 1995 hellmann 1998 and kaplan and str omberg 2001 2002 2003 a second research stream has suggested that when the quality of a start up cannot be directly observed external actors rely on the quality of the start up s affiliates as a signal of the start up s own quality

on the effect of demand randomness on inventories and costs we explore analytically cardinal effects of the extent of demand randomness on optimal inventory levels and the associated expected costs to model changes in demand randomness we make extensive use of a mean preserving transformation commonly used in probabilistic microeconomics as well as the notion of risk pooling aggregating independent demands for the single period news vendor model the order quantity and associated costs are shown to depend on the randomness parameter in a simple and highly interpretable manner we show by a simple example that in some situations risk pooling might neither reduce inventories nor move them closer to the mean or median demand the managerial relevance of such analyses is discussed

on the relationship between entropy demand uncertainty and expected loss abstract we analyze the effect of demand uncertainty as measured by entropy on expected costs in a stochastic inventory model existing models studying demand variability s impact use either stochastic ordering techniques or use variance as a measure of uncertainty due to both axiomatic appeal and recent use of entropy in the operations management literature this paper develops entropy s use as a demand uncertainty measure our key contribution is an insightful proof quantifying how costs are non increasing when entropy is reduced

capital gains tax rates and the cost of capital for small business evidence from the ipo market abstract we examine the issue prices of small initial public offerings around the 1993 tax law change that reduced the capital gains tax on qualified small business stock we compare the actual issue price of new stock with a benchmark price that is not affected by the change in capital gains tax we find that after controlling for ipo underpricing the issue prices of qualifying small business stock after the tax rate change are significantly higher than the issue prices before the change a control sample of nonqualifying firms shows no significant difference in issue prices

capital gains taxes and asset prices capitalization or lock in this paper demonstrates that the equilibrium impact of capital gains taxes reflects both the capitalization effect i e capital gains taxes decrease demand and the lock in effect i e capital gains taxes decrease supply depending on time periods and stock characteristics either effect may dominate using the taxpayer relief act of 1997 as our event we find evidence supporting a dominant capitalization effect in the week following news that sharply increased the probability of a reduction in the capital gains tax rate and a dominant lock in effect in the week after the rate reduction became effective this paper jointly tests two effects of capital gains taxation on equity trading a demand side capitalization effect and a supply side lock in effect while previous studies have tested these effects separately to the best of our knowledge this is the first study to evaluate them jointly and empirically document the relative dominance of each effect surrounding a change in a tax rate employing an equilibrium approach we show that these effects net tax impact on asset prices is ambiguous evaluating returns and trading volume around the 1997 reduction in the capital gains tax rate we find evidence that the capitalization and the lock in effects jointly affect trading in particular the capitalization effect dominates the lock in effect in the week following an increase in the probability of a reduction in the capital gains tax rate as buyers respond to information that future capital gains tax rates will be lower the lock in effect however dominates the capitalization effect after the rate reduction actually becomes effective taxation is one of the most prevalent market frictions in financial markets affecting investors decisions and distorting the valuation of assets capital gains taxes in particular play an important role in determining an investor s trading strategies and can ultimately affect asset prices because investors

founder s human capital external investment and the survival of new high technology ventures the effect of founder characteristics in attracting external investment and enhancing survival of new high technology ventures is explored using human capital theory and signalling theory we test the effect of founder characteristics on external investment in and survival of new high technology ventures by tracking a random sample of 193 high technology start ups all participants in the israeli technology incubator program founder s business management expertise and academic status attracted external investment but founder s general technological expertise did not founder s business management expertise and general technological expertise positively affected venture survival but founder s academic status did not possible implications for entrepreneurs investors policy and further research are discussed

diseconomies of size with fixed managerial ability managerial ability has important implications for farm growth in this article we first show in a production model that increasing output with a fixed level of managerial ability can lead to a decrease in profits next we discuss the effect that managerial ability has on economies of size in the empirical part economies of size are estimated for a sample of dairy farms using a proxy for managerial ability which is calculated as a technical efficiency index the results show that increasing farm size while holding managerial ability constant can be an important source of diseconomies of size copyright 2003 oxford university press

the market for tax benefits evidence from leveraged esops abstract this paper examines the competitiveness of the financial markets with respect to taxes a unique set of interest rates from leveraged esops enables precise measures of the effect of a debt subsidy on prices i find that the market shifts most of the tax benefits to borrowers indicative of an elastic supply curve for lenders lenders are compensated for incremental costs such as reductions in tax rates and barriers to entry evidence is also presented that esop lenders are high taxpaying banks suggesting the existence of a tax clientele

capitalization of capital gains taxes evidence from stock price reactions to the 1997 rate reduction abstract we empirically document that stock prices moved inversely with dividend yields during the may 1997 week when the white house and congress agreed on a budget accord that included a reduction in the capital gains tax rate the findings are consistent with equity prices capitalizing expected capital gains taxes two scenarios are possible first to the extent returns are expected to be taxed as capital gains a reduction in the expected capital gains tax rate enhances market value second to the extent individuals hold a stock a reduction in the expected personal capital gains tax rate increases market value

the effect of capital gains taxes on the initial pricing and underpricing of ipos we investigate the extent to which capitalization of expected capital gains taxes and the lock in effect induced by the capital gains tax rate differential simultaneously impact the pricing and underpricing of initial public offerings ipos using a large sample of ipos from 1987 to 2010 we estimate regressions of offer prices and first day underpricing on tax rates supporting tax capitalization ipo offer prices decrease in long term capital gains taxes supporting lock in ipo underpricing increases in the long term and short term tax rate differential these effects are consistent with capital gains taxes simultaneously reducing ipo proceeds and exacerbating ipo underpricing

the economic importance of financial literacy theory and evidence this paper undertakes an assessment of a rapidly growing body of economic research on financial literacy we start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population next we draw on recent surveys to establish how much or how little people know and identify the least financially savvy population subgroups this is followed by an examination of the impact of financial literacy on economic decision making in the united states and elsewhere while the literature is still young conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps a final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy jel a20 d14 g11 i20 j26

the elasticity of scale and the shape of average costs different concepts of returns to scale the first which is most widely used for defining returns to scale is the relative increase in output as all input quantities are increased proportionally along a ray through the origin the second which is the more relevant concept for micro economic analysis is the increase in output relative to costs for variations along the expansion path where input prices are constant and costs are minimized at every output 2 as it turns out these two concepts yield equal measures for the elasticity of scale3 e at every minimum cost point in the input space however the change in e with output is generally different for the two concepts 4 since expansion paths do not coincide with rays unless the production function is homothetic 5 but it is the change of e along the expansion path and not along the raywhich determines the shape of the average cost curve ac and which is therefore relevant for the analysis of firms and industry behavior under competition 6 these relations are stated and analyzed below it is shown that assumptions made in the literature7 which are related to the behavior of e along rays or to the slope of the technically optimal surface where returns to scale are locally constant are irrelevantbeing neither necessary nor sufficient for implying classical u shaped average cost curves the following definitions and results are used here

the consequences of entrepreneurial finance evidence from angel financings this article documents the fact that ventures funded by two successful angel groups experience superior outcomes to rejected ventures they have improved survival exits employment patenting web traffic and financing we use strong discontinuities in angel funding behavior over small changes in their collective interest levels to implement a regression discontinuity approach we confirm the positive effects for venture operations with qualitative support for a higher likelihood of successful exits on the other hand there is no difference in access to additional financing around the discontinuity this might suggest that financing is not a central input of angel groups

ex ante and ex post long run average cost functions the traditional neoclassical derivation of the long run average cost lac function is based on minimizing the cost of a given output however there are a number of reasons why the theoretical concept of this ex ante lac function is likely to differ significantly from ex post cost output observations when output is stochastic in agriculture the farmer s decision making criterion is assumed to be one of minimizing the cost of producing some planned output level average cost is then a function inter alia of planned output rather than realized output it is argued that there is no operational significance in the cost realized output relationship in practice the farmer s concern is with the cost planned output relationship this paper proposes a two stage procedure to estimate the latter relationship cross section data on uk dairy farms for 1980 1 are used to show significant differences in the ex ante and ex post relationships

retailer policy uncertainty reduction and supply chain performance abstract we investigate how the retailer s inventory policy affects the total cost of a serial supply chain when the retailer uses the locally optimal s s policy there is randomness in order time and order quantity to the supplier whereas the supplier sees randomness only in order quantity for the suboptimal r t policy and only in order time for another suboptimal q r policy using an extensive computational study we find that the suboptimal policies perform better from the total supply chain perspective the benefit of policy changes is magnified when the retailer costs are low when the supplier costs are high and when there is information sharing

the role of entrepreneurship in us job creation and economic dynamism the united states has long been viewed as having among the world s most entrepreneurial dynamic and flexible economies it is often argued that this dynamism and flexibility has enabled the us economy to adapt to changing economic circumstances and recover from recessions in a robust manner while the evidence provides broad support for this view the outcomes of entrepreneurship are more heterogeneous than commonly appreciated and appear to be evolving in ways that could raise concern evidence along a number of dimensions and a variety of sources points to a us economy that is becoming less dynamic of particular interest are declining business startup rates and the resulting diminished role for dynamic young businesses in the economy we begin by describing how the concept of entrepreneurship is reflected in existing data on firm age and size the recent addition of firm age to official statistics represents a dramatic improvement in the information available to entrepreneurship researchers we then turn to a discussion of the role of startup firms in job creation business startups account for about 20 percent of us gross total job creation while high growth businesses which are disproportionately young

how larger demand variability may lead to lower costs in the newsvendor problem in this paper we consider the newsvendor problem intuition may lead to the hypothesis that in this stochastic inventory problem a higher demand variability results in larger variances and in higher costs in a recent paper song 1994a has proved that the intuition is correct for many demand distributions that are commonly used in practice such as for the normal distribution function however this paper shows that there exist demand distributions for which the intuition is misleading i e for which larger variances occur in combination with lower costs to characterize these demand distributions we use stochastic dominance relations

the effect of leadtime uncertainty in a simple stochastic inventory model we study a basic continuous time single item inventory model where demands form a compound poisson process and leadtimes are stochastic the performance measure of interest is the long run average cost order costs are linear so a base stock policy is optimal we focus on the behavior of the optimal base stock level in response to stochastically larger or more variable leadtimes we also investigate the behavior of the corresponding long run average costs we show that a stochastically larger leadtime requires a higher optimal base stock level however a stochastically larger leadtime may not necessarily result in a higher optimal average cost because sometimes the variability effects may dominate on the other hand a more variable leadtime always leads to a higher optimal average cost the effect of leadtime variability on optimal policies depends on the inventory cost structure a more variable leadtime requires a higher optimal base stock level if and only if the unit penalty holding cost rate is high low similar results regarding the effect of leadtime demand are also discussed in this latter case the compound poisson assumption is not necessary

does a manufacturer benefit from selling to a better forecasting retailer this paper considers a manufacturer selling to a newsvendor retailer that possesses superior demand forecast information we show that the manufacturer s expected profit is convex in the retailer s forecasting accuracy the manufacturer benefits from selling to a better forecasting retailer if and only if the retailer is already a good forecaster if the retailer has poor forecasting capabilities then the manufacturer is hurt as the retailer s forecasting capability improves more generally the manufacturer tends to be hurt benefit by improved retailer forecasting capabilities if the product economics are lucrative poor finally the optimal procurement contract is a quantity discount contract

capital gains taxation and funding for start ups abstract we examine how capital gains taxes affect investment in private start up i e pre ipo firms using data on capital raised in individual funding rounds we estimate the effect of the 2010 sbja which implemented a full exemption from federal capital gains tax on the sale of qualified shares because of the resulting higher expected after tax returns we hypothesize and find evidence consistent with this capital gains tax reduction increasing the amount of investment in start up firms per funding round by about 12 the effect is stronger in start up firms that are likely to have greater administrative capacity we estimate that about one third of the tax benefit is captured by investors