I show that venture capitalists' motivation to build reputation can have beneficial effects in the primary market, mitigating information frictions and helping firms go public. Because uninformed reputation-motivated venture capitalists want to appear informed, they are biased against backing firms — by not backing firms, they avoid taking low-value firms to market, which would ultimately reveal their lack of information. In equilibrium, reputation-motivated venture capitalists back relatively few bad firms, creating a certification effect that mitigates information frictions. However, they also back relatively few good firms, and thus, reputation motivation decreases welfare when good firms are abundant or profitable.
Piacentino, Giorgia. "Venture Capital and Capital Allocation." Journal of Finance 74, no. 3 (June 2019): 1261-1314.
Each author name for a Columbia Business School faculty member is linked to a faculty research page, which lists additional publications by that faculty member.
Each topic is linked to an index of publications on that topic.