More from the Author

• Working Paper | 2012

  The Cost of Friendship

  Paul A. Gompers, Yuhai Xuan and Vladimir Mukharlyamov

  This paper explores two broad questions on collaboration between individuals. First, we investigate what personal characteristics affect people's desire to work together. Second, given the influence of these personal characteristics, we analyze whether this attraction enhances or detracts from performance. Addressing these problems in the venture capital syndication setting, we show that venture capitalists exhibit strong detrimental homophily in their co-investment decisions. We find that individual venture capitalists choose to collaborate with other venture capitalists for both ability-based characteristics (e.g., whether both individuals in a dyad obtained a degree from a top university) and affinity-based characteristics (e.g., whether individuals in a pair share the same ethnic background, attended the same school, or worked for the same employer previously). Moreover, frequent collaborators in syndication are those venture capitalists who display a high level of mutual affinity. We find that while collaborating for ability-based characteristics enhances investment performance, collaborating for affinity-based characteristics dramatically reduces the probability of investment success. A variety of tests show that the cost of affinity is not driven by selection into inferior deals; the effect is most likely attributable to poor decision-making by high-affinity syndicates post investment. Taken together, our results suggest that non-ability-based "birds-of-a-feather-flock-together" effects in collaboration can be costly.

  Citation:

  Gompers, Paul A., Yuhai Xuan, and Vladimir Mukharlyamov. "The Cost of Friendship." NBER Working Paper Series, No. 18141, June 2012.

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• Chapter | Research Handbook on International Banking and Governance | 2012

  The Role of Venture Capitalists in the Acquisition of Private Companies

  Paul A. Gompers and Yuhai Xuan

  Keywords: Venture Capital; Acquisition; Private Ownership;

  Citation:

  Gompers, Paul A., and Yuhai Xuan. "The Role of Venture Capitalists in the Acquisition of Private Companies." In Research Handbook on International Banking and Governance, edited by James Barth, Chen Lin, and Clas Wihlborg. Cheltenham, UK: Edward Elgar Publishing, 2012.

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• Article | Journal of Financial Economics | April 2012

  Corporate Ownership Structure and Bank Loan Syndicate Structure

  Chen Lin, Yue Ma, Paul Malatesta and Yuhai Xuan

  Using a novel data set on corporate ownership and control, we show that the divergence between the control rights and cash-flow rights of a borrowing firm's largest ultimate owner has a significant impact on the concentration and composition of the firm's loan syndicate. When the control-ownership divergence is large, lead arrangers form syndicates with structures that facilitate enhanced due diligence and monitoring efforts. These syndicates tend to be relatively concentrated and composed of domestic banks that are geographically close to the borrowing firms and that have lending expertise related to the industries of the borrowers. We also examine factors that influence the relation between ownership structure and syndicate structure, including lead arranger reputation, prior lending relationship, borrowing firm informational opacity, presence of multiple large owners, laws and institutions, and financial crises.

  Keywords: Ownership; Financing and Loans; Cash Flow; Borrowing and Debt; Accounting; Crisis Management; Relationships; Law; Contracts; Banking Industry;

  Citation:

  Lin, Chen, Yue Ma, Paul Malatesta, and Yuhai Xuan. "Corporate Ownership Structure and Bank Loan Syndicate Structure." Journal of Financial Economics 104, no. 1 (April 2012): 1–22. (Lead Article.)

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