Society for Financial Studies

# Review of Corporate Finance Studies

Executive Editor:
Editors:

## News

### September 2, 2014: RCFS paper featured in Virtual Issue: The Eurozone Crisis

Have you seen the Oxford University Press virtual issue on the Eurozone Crisis, featuring Craig H. Furfine’s paper, “Complexity and Loan Performance: Evidence from the Securitization of Commercial Mortgages,” published in RCFS? The issue is free to read online at The Eurozone Crisis.

### August 28, 2014: RCFS Editor Named An Influential Young Economist

RCFS Editor Amit Seru is featured in the International Monetary Fund’s list of influential young economists, which published in the September 2014 (51/3) issue of Finance & Development. Read the article here. Congratulations Amit!

### August 26, 2014: Editor’s Choice: September

The Editor’s Choice article for September 2014 (issue 3/1-2) is “Is the Stock Market Just a Side Show? Evidence from a Structural Reform” by Murillo Campello, Rafael P. Ribas, and Albert Y. Wang. You can read the article free online here.

### August 5, 2014: Citation Impact Factor for RCFS

Our publisher, Oxford University Press, has computed the 2013 Citation Impact Factor for RCFS. Had the new journal been indexed by ISI in 2013, RCFS would have an Impact Factor of 1.000.

### July 22, 2014: Next Issue of RCFS Mailing Soon!

The finishing touches are being put on the upcoming issue of RCFS, which will mail with the September issue of RFS.

### June 30, 2014: Latest Forthcoming Papers

Forthcoming in Volume 3:

Venture Capitalists versus Angels: The Dynamics of Private Firm Financing Contracts“ by Thomas J. Chemmanur  and Zhaohui Chen

and

Optimal Incentive Contracts and Information Cascades“ by Praveen Kumar and Nisan Langberg.

### June 3, 2014: Converting the Archive to HTML with MathJax

The SFS Council voted to pay Oxford University Press to convert the entire archive of RFSRAPS, and RCFS articles into state-of-the-art full text HTML files including equations rendered using the Java-based “MathJax” web standard. The new file format will allow equations (and the rest of the article) to scale from 4-inch screens to 30-inch screens, which will facilitate their use on smartphones, tablets, etc.

### May 30, 2014: Best Paper Award

The winner of this year’s RCFS Best Paper Award is:

Sudipto Bhattacharya and Kjell G. Nyborg
Prize: $10,000 This award was announced at the 2014 Cavalcade. ### May 30, 2014: Referee of the Year Award The winner of this year’s RCFS Referee of the Year Award is: Amit Seru Prize:$1000

This award was announced at the 2014 Cavalcade.

### May 29, 2014: Upcoming Changes

RCFS announces the retirement of Editor Joshua Rauh. We thank Joshua for his service.

Amit Seru of the University of Chicago will be the incoming Editor. We look forward to having him on our team.

• Turnaround:
Mean: 42.58 days
Median: 41 days
Acceptance Rate:
(since 9/2/12): 9.93%
• Citation Impact Factor: 1.000
Note: This figure was computed by Oxford University Press based on what the impact factor would be if the journal had been indexed by ISI in 2013.
• ## Conference Announcements

Paper submission period: November 10-December 8, 2014

• ## Color Pages

The RCFS publishes pages in color! You can include figures for free in the online publication on Oxford University's web page. If you want some or all of the figures to appear in color in the printed version as well, there is a service fee of \$300 per figure to cover the journal's costs.

Want to be notified by RSS about new RCFS papers? Visit the RSS information on our publisher's website.

## Forthcoming in the RCFS

### Venture Capitalists versus Angels: The Dynamics of Private Firm Financing Contracts

by Thomas J. Chemmanur  and Zhaohui Chen
We analyze an entrepreneur’s choice between venture capital (VC) and angel ﬁnancing at various stages in his ﬁrm’s life, and the dynamic evolution of the ﬁrm’s ﬁnancing contract. We consider an entrepreneur with private information about the productivity of his ﬁrm, but where the ﬁnancier (VC or angel) can reduce his information disadvantage as he learns about the ﬁrm over time. VCs and angels diﬀer in two ways. First, unlike an angel ﬁnancier, VCs may exert eﬀort to add value to the ﬁrm, and thereby, together with the entrepreneur’s eﬀort, increase the probability of the ﬁrm’s success. Second, VC ﬁnancing is scarce relative to angel ﬁnancing. The equilibrium VC ﬁnancing contract maximizes value-addition by ensuring that both the entrepreneur and the VC exert optimal eﬀort. We develop a number of new results regarding the optimal ﬁnancing path (angel versus VC) of the ﬁrm; the diﬀerences between angel and VC ﬁnancing contracts in terms of their ﬁxed-income versus warrant (upside) components; the diﬀerences between early stage and later stage VC ﬁnancing contracts; and the implications of the equilibrium ﬁnancing path for the ﬁrm’s probability of successful exit (IPO or acquisition).

### Optimal Incentive Contracts and Information Cascades

by Praveen Kumar and Nisan Langberg
We examine information aggregation regarding industry capital productivity from privately informed managers in a dynamic model with communication-based incentive contracts. When managers enjoy limited liability, information cascades occur almost surely: learning stops when beliefs become endogenously extreme (optimistic or pessimistic) regarding industry productivity. There is no learning if initial beliefs are extreme, or agency conflicts are severe. In contrast to the herding literature, cascades occur even when signals have unbounded precision or there are rich action spaces. Relaxing limited liability constraints is not sufficient to avoid cascades; we provide sufficient conditions for efficient information aggregation through incentive contracts.

### Long-term debt and hidden borrowing

by Heski Bar-Isaac, Vicente Cuñat
We consider borrowers with the opportunity to raise funds from both a competitive banking sector, in which information is shared, and an opaque system of hidden lenders, in which information is private. The presence of hidden lenders allows borrowers to conceal poor results from their banks and thus restricts the set of contracts that can be obtained from the banking sector. In equilibrium, borrowers obtain funds from both the banking sector and the inefficient hidden sector simultaneously such that different types of borrowers cannot be distinguished by banks. This lack of transparency generates cross-subsidies between different, observationally equivalent borrowers. We demonstrate that the variety of funding arrangements offered by the banking sector is smaller when the cost of borrowing in the hidden sector is lower. In particular, whereas high costs of hidden borrowing allow each different (viable) type of borrower to access unique terms from the banking sector, as the cost of hidden borrowing falls, an increasing number of borrowers face identical terms up to the point at which all borrowers accessing the banking sector (which may include inefficient borrowers) face identical terms.

### Is the Stock Market Just a Side Show? Evidence from a Structural Reform

by Murillo Campello, Rafael P. Ribas, Albert Wang
The 2005 split-share reform in China mandated the conversion of nontradable stocks into tradable status. This paper examines the effects of stock markets on corporate outcomes exploiting multiple institutional features of the Chinese conversion program. Using a generalized propensity score matching approach, we identify increases in corporate profitability, investment, value, and productivity as a result of the reform. We also identify changes in firms likelihood to issue shares and engage in mergers, as well as changes in dividend and capital structure policies. Our findings provide insights on the role of stock markets in shaping corporate activity and on the impact of regulation on economic growth.