Katja Kisseleva, Frankfurt School of Finance and Management gGmbH
Aksel Mjos, Norwegian School of Economics
David Robinson, Duke University
Abstract: This paper asks whether financial accounting numbers reflect information relevant in providing financing to growth-oriented early-stage firms. We use detailed administrative records from Norway to build a measure of a startup's ex ante innovation potential, before it receives financing. This allows us to look beyond the set of venture-backed startups to include firms that may never successfully raise outside capital. The lagged book value of equity, disaggregated into earnings and contributed capital, captures between 26%--46% of the total variation in valuations across financing rounds. Further publicly or privately observable firm characteristics and more granular accounting information do not provide meaningful additional explanatory power. The analyses suggest that earnings not only aggregate those characteristics but reflect unobservable information, which incrementally explains valuations and whether a firm raises outside equity. Overall, our findings speak to the importance of accounting information to reduce information asymmetries even in highly uncertain settings, in which investing based on ``gut feeling" may be the norm.
Abstract: Financial intermediary (FI) stress, measured by leverage, is an important driver of asset prices and quantities. We identify a new and equally important FI channel driving risk and the real sector: FIs are stressed when FI labor share (FLS) is high. FLS negatively forecasts aggregate output, investment, and credit growth; it positively forecasts excess returns and cost of credit. High FLS banks lend less and are riskier. Firms connected to such banks borrow less, grow less, and pay more to borrow. A DSGE model where FIs face shocks to the quantity of labor needed to intermediate capital explains these findings.
Abstract: We study incentives for post-trade information disclosure in the over-the-counter financial markets. We argue that execution prices alone do not fully capture the value of the traded assets, and model incentives to hide or reveal information embedded in unexecuted offers. Our model explains why investors, requesting quotes from multiple dealers in the corporate bond market, might choose to conceal the runner-up offer — the cover — from the winning dealer even though the increased informational opacity can decrease dealers’ incentives to win the trade and worsens their quotes. Investors conceal covers if they trade frequently, gains from trade are high, or uncertainty about bond values is low. We discuss the implications for market liquidity, fragmentation, and the design of electronic RFQ platforms.
Discussant: Scott Condie, Brigham Young University
