Emmanuel Yimfor

Emmanuel Yimfor

Assistant Professor of Finance, Columbia Business School

My research is in empirical corporate finance, focusing on entrepreneurial finance, venture capital, private equity, and financial intermediation. I am particularly interested in studying how various frictions affect the ability of start-ups to raise external financing. My recent work studies the heterogenous effects of these frictions on access to capital for founders and investors who are minorities or women.

Download CV - January 2024

Research


Select Working Papers


Misconduct Synergies (with Heather Tookes) [Slides][BibTeX]
 
R&R Journal of Finance

Post merger drop in misconduct

Do corporate control transactions discipline the labor force? Consistent with synergies, we find that new disclosures of employee misconduct in the investment advisory industry drop by between 28 and 37% following mergers. Both targets and acquirers have better premerger misconduct records than the industry’s average firm and, within the subsample of merging firms, there is assortative matching on misconduct. Merger events facilitate further reductions in misconduct through separations of target firm employees with high misconduct. Many of these employees remain in the industry, suggesting that mergers play an important role in the redistribution of misconduct across firms.



Presentations
  • AFA 2022, European Finance Association (2021), University of Pennsylvania (Wharton), Indiana University, University of Michigan (Ross), the University of North Carolina (Kenan-Flagler), University of London (Cass), University of Texas (McCombs), Copenhagen Business School
Media
Law Professors; Business Scholarship Podcast; CLSBlueSkyLawBloG Columbia Law; Yale Insights

Brokers and Finders in Startup Offerings [Slides][BibTeX]
 
R&R Journal of Financial and Quantitative Analysis (solicited)

Which issuers match with brokers?

This study uses Form D filings to uncover new facts about brokered startup offerings, where 60% of brokers are registered with FINRA, while 40% are unregistered, often referred to as "finders." Issuers, particularly those with fewer sophisticated investors and a higher number of brokers in their zip code, are more likely to engage with brokers. Venture Capitalists (VCs) rarely participate in brokered offerings, but non-accredited investors tend to be more involved in offerings handled by finders. Using the issuer's proximity to the broker as an instrument, the data shows that while all brokers cause issuers to raise capital, issuers who use finders experience fewer successful exits and more closures post-funding. This suggests that finders might be channeling capital to lower-quality startups by involving non-accredited investors. The results suggest that brokers help startups reduce search costs when they can't access VC funding, but it remains unclear whether this increased capital allocation due to broker use is efficient.



Presentations
  • AFA 2022, Yale School of Management, Entrepreneurial Finance Association, University of Pennsylvania (Wharton), University of Toronto (Workshop on Gender, Race, and Entrepreneurship), SEC (DERA), FINRA, University of Michigan, Indiana University, Purdue, Virginia Tech, Southern Methodist University, University of Iowa, Baruch College, University of South Carolina, University of Oklahoma, Kent State University, Rice University

Funding Black High-Growth Startups (with Lisa Cook and Matt Marx) [Slides][BibTeX]
 
R&R Journal of Finance

Funding Black High-Growth Startups

This study examines the persistent funding gap for Black founders in venture capital and investigates the drivers behind this disparity. Employing a novel race-disambiguation algorithm, we find that only 3.47% of Black founders are in the pipeline. Our analysis provides partial support for the supply-side argument, suggesting that broader societal factors play a significant role. However, our theoretical model demonstrates that the distinction between supply-side and demand-side arguments is not clear-cut, as demand-side problems can influence the supply-side by affecting founders' decisions to invest in skills that venture investors value. By comparing Black-founded and non-Black-founded startups in the same industry, state, and formation year, we quantify the funding gap, finding that Black-founded startups raise only one-third of the amount raised by their non-Black counterparts. Our research reveals that altering the composition of venture investors could substantially reduce the funding gap, as it narrows by nearly 50 percentage points when a Black lead partner is involved, and we show that Black lead partners fund successful Black startups within the same venture capital firm. Using the George Floyd social justice movements to suggest causality, we posit that the correlation between Black lead partners and the likelihood of funding for Black founders is causal. Back-of-the-envelope calculations suggest that a 7% representation of Black venture fund partners could equalize the likelihood of raising venture funding for Black and non-Black-founded startups, compared to the current figure of 3%.



Presentations
  • ASSA 2023, MFA 2023, PERC 2022, SI 2022 Entrepreneurship NBER, USPTO, University of Michigan (Ross Brownbag), Harvard University, Duke University, Carnegie Mellon, Columbia University, The University of Chicago, Purdue University (Krannert), The University of North Carolina, Pontificia Universidad Católica de Chile, Rice University, Carnegie Mellon, the Brookings Institution, FOM Conference, PERC, DITE, and FEDSA
Media
Kenan Institute
Racial Diversity in Private Capital Fundraising (with Johan Cassel and Josh Lerner) [Slides] [BibTeX]
[List of Minority Groups]

# Minority Funds Raised

Black- and Hispanic-owned funds control a very modest share of assets in the private capital industry and encounter difficulties in raising first-time funds. We find that the sensitivity of fundraising to performance is greater, particularly for underperforming groups. We find little support for a number of explanations for these patterns: that minority fund valuations are overstated, that minority funds encounter difficulties in hiring personnel, or that deploying capital is more difficult for these funds. We do find that the ability of minority groups to raise capital increases during periods of high racial awareness and when the chief investment officer of local endowments or pension plans are minorities. Together, the results support the hypothesis that the modest representation of Black- and Hispanic-owned firms in private capital stems at least partially from the nature of investor demand, rather than the supply of fund managers.



Presentations
  • HEC Paris Entrepreneurship Workshop, ASSA 2023, MFA 2023, SFS Calvacade 2022, PERC Encore 2022, Dartmount Virtual Corporate Finance 2021, PERC 2021, The University of Utah
Media
Tech Policy; Burgiss; Institutional Investor; Axios; Wealth Professional; Kenan Institute


Alumni Networks in Venture Capital Financing (with Jon Garfinkel, Erik Mayer and Ilya Strebulaev) [Slides][BibTeX]

Probability of raising VC funding

Drawing on two decades of extensive deal data from the venture capital market, we show that one in three deals involves an investor and founder from the same alma mater. Notably, venture capitalists (VCs) are not only more likely to invest in founders from their alma mater, but also place larger bets on these firms. Tests exploiting VC partner turnover suggest a causal link between education connections and funding likelihood. Crucially, using an instrumental variables strategy, we also find that startups on the margin, whose founders share an alma mater with a VC partner, have better post-funding outcomes. These positive effects of connections are stronger when information about founder abilities is less clear, and when connections between the VC and founder are stronger---such as when they attended the same university concurrently. We conclude our analysis by showing that, conditional on perceived school quality, minority freshmen are more likely to attend schools with higher rates of same alma mater matching, suggesting that these university connections likely alleviate financing frictions for minority entrepreneurs. Collectively, our findings suggests that university connections facilitate information flow on average, rather than merely channeling funding towards lower-quality startups.



Presentations
  • University of North Carolina, University of Michigan, Southern Methodist University, FMA Early Ideas, California State Fullerton
Media
State Science & Technology Institute; Institutional Investor; Teknovation; Wall Street Journal


Are Creators Better Investors than Managers? Evidence from First-time Venture Funds (with Shane Miller, David Brophy, and Ye Zhang) [Slides] [BibTeX]

Large IPOs by first-time funds

We study the sources of cross-sectional variation in the performance of first-time venture capital (VC) fund partners (GPs). We find that, relative to GPs with startup experience (creators), GPs with VC experience (managers) are at least 20 percent more likely to invest in successful deals or start a follow-on fund. Consistent with a network effect, we show that the higher success rate for managers primarily comes from joining successful syndicates, not from leading successful deals. Our results show that, in industries where proprietary access is an essential component of value-add, industry experience is an important element of success.



Presentations
  • PERC 2021, Workshop on Entrepreneurial Finance and Innovation (WEFI) 2021, University of Michigan Ross (Brownbag)

Regulatory Arbitrage or Random Errors? Implications of Race Prediction Algorithms in Fair Lending Analysis (with Sabrina Howell, Daniel Greenwald and Cangyuan Li) [Slides][BibTeX]

Approval Rate by Group

In settings where race is not directly observed it is common to use proxies, in particular an algorithm called BISG, which predicts race using a person's last name and address. If these features are correlated with socioeconomic characteristics, BISG errors could bias analysis and decisions. In the context of small business lending, where regulators use BISG to assess compliance with fair lending laws, we show that BISG poorly predicts whether an individual is Black, generating more than twice as many false classifications as correct ones. To conduct these tests, we develop a novel and replicable measure of perceived race using images, which we show is 60% more accurate than BISG when self-identified race is the baseline. We show that false positives are related to measures of socioeconomic disadvantage, and that image-based race negatively predicts loan approval, while BISG-based race does not. Error rates vary across lenders, leading them to appear more or less compliant with fair lending rules, and possibly creating incentives to manipulate who they serve for compliance purposes. Overall, our findings suggest that race-conscious policies using proxies rather than actual data on race will struggle to achieve their intended outcomes.




Underwriter Closures: Implications for VC Firm Returns (with Alex Tuft) [Slides][BibTeX]

IPOs as a Fraction of Total Exits and Underwriter Closure

The relationship between venture capital (VC) firms and underwriters is a central aspect of the startup ecosystem, but it is hard to identify to what extent underwriters influence VC firms' investment returns. Exploiting quasi-exogenous variation in underwriter closures and mergers, we find that lost underwriting relationships significantly reduce the likelihood of a startup exiting via an IPO up to five years following the event. Furthermore, we find that the impact of underwriter closures on IPO exits is larger for smaller funds, funds under pressure to liquidate their investments, and funds whose closed underwriters had been very active in the IPO market. In addition, VC firms that lose underwriting relationships typically see lower returns on their investments and face higher underwriting costs. Our findings support the hypothesis that underwriting relationships contribute to the value creation of VC firms.



Presentations
  • University of Michigan (Ross Brownbag)

Managing Aggrievement (with Tarik Umar and Jefferson Duarte) draft available upon request

OZ Effect

Theory predicts that central planners manage the aggrievement of pressure groups when distributing resources. However, empirical evidence of managing aggrievement is rare. We fill this gap using the Opportunity Zone (OZ) program, in which governors selected low-income census tracts to become OZs and receive investment incentives. Using governors' OZ selections, we estimate a model that identifies governors' aversion to aggrieving counties. The model fits the local aggrievement reported by local officials and reveals that managing local aggrievement resulted in OZs that stimulated 45% less investment and that contain 20-thousand fewer poor families and 348-thousand (223-thousand) fewer black (Hispanic) residents.



Presentations
  • 2023 African Econometric Society, 2023 Asia Meeting of the Econometric Society - Beijing, 2023 Asia Meeting of the Econometric Society - Singapore, 2023 AREUEA International Conference Cambridge, 2023 AREUEA National Conference, 57th Canadian Economics Association Conference, 2023 Eastern Economics Association, 2023 North America Summer Meeting of the Econometric Society, ASSA 2021, University of Michigan Public Policy, University of Colorado, Rice University, INFER Annual Conference 2020, 2020 Association for Public Policy Analysis, 76th Annual Congress of the IIPF, Econometric Society's World Congress, 9th International Industrial Organization and Spatial Economics Conference, Portuguese Finance Network International Conference, European Economic Association


Select Work in Progress


Board Diversity in Private and Public Firms: The Role of Venture Capital and Private Equity (with Johan Cassel and James Weston)
Startup Failure and Employee Outcomes (with Heather Tookes)

Publications


Discounting Restricted Securities (with Tarik Umar and Rustam Zufarov) [BibTeX]  
Journal of Financial and Quantitative Analysis

Equity Placement Method and Discounts

We examine the costs of trading restrictions by exploiting an SEC rule change eliminating an ~80-day restriction period in private placements for small issuers. Using a difference-in-differences specification, we find that the restriction is binding, as dollar volume increases 19 percentage points vis-à-vis proceeds, and costly, as offering discounts fall by eight percentage points. Discounts fall more for issuers with higher information asymmetry or longer restriction periods. We account for endogenous responses to the rule change. Overall, our findings suggest that trading restrictions are costly and have large effects on firms' cost of capital.



Presentations
  • Rice University Seminar Series, Lone Star Finance Conference, Southwestern Finance Association
Video of SEC proposal expanding shelf registration

Bank Loans and Bond Prices (with James Weston) [BibTeX]  
Journal of Corporate Finance

Bank Loans and Bond Prices

We test whether bank loans change public bond yields. A 25% increase in bank debt raises bond yields by 8 bps, reflecting a trade-off between the benefits of bank cross-monitoring and higher bond risk. This effect is smaller for firms with no credit default swaps (CDSs) and with junk debt---scenarios where bank monitoring is most valuable. It is unlikely that firms with bank debt are riskier, because they are less likely to be downgraded and have lower loan spreads. We find similar results using a natural experiment around the 2014 oil shock. Our results highlight how bond yields depend on incentive conflicts among creditors.




Presentations
  • Southwestern Finance Association, Rice University Seminar Series, Financial Management Association, Midwestern Finance Association, Virginia Tech

Predicting Success in Entrepreneurial Finance Research (with Jon Garfinkel) [BibTeX]  
Journal of Corporate Finance

Predicting Success in Entrepreneurial Finance Research

We study the relationship between buyout and venture capital (VC) funds' returns, and more typically available proxies - exits via M&A or IPO. We further explore the effects of filters on the selection of M&As and IPOs (to emphasize successes), on the relationship. We show that some of these filters can reduce the count of exits by as much as 80% without significantly improving the correlation between exits and fund returns. We also show that for venture capital funds, counting acquisitions that are at least twice the amount of funding raised results in the best correlation between exits via an acquisition and fund returns. Finally, when the sample comprises young startups - that are perhaps not yet ready for any form of exit - follow-on funding, employment, website ranking, and patent activity can be used as proxies for exits in place of IPOs or acquisitions.




Teaching


WINTER 2023


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