| dc.description.abstract | This thesis is three chapters. In the first chapter, I study the impact of restricting foreign venture capital investments for national security reasons. Countries have increasingly been using economic policies to further geopolitical and national security goals. Thus far, economists have focused on studying tariffs and subsidies despite a broader range of economic tools actually being implemented. How costly are these other policies and what are their effects on capital markets, investment, and the economy more broadly? In this paper, I examine a 2018 U.S. law (FIRRMA), which expanded the government’s ability to review and block transactions on national security grounds to include venture capital (VC) investments by foreign investors. I use the passing of FIRRMA, its differential impact on specific VC industries, and the role of Chinese investors in U.S. venture capital to study whether foreign investment screening impacts capital supply. I find that FIRRMA had a negative effect on capital supply in impacted industries due to two factors: 1) the specialization of VC investing (such that the substitution of outside capital into impacted industries is low) and 2) networks in VC investing (there are spillovers to domestic syndication partners in impacted industries). I further find that the change in capital supply is costly, leading to lower innovation by startups. I introduce a novel way of measuring innovation early in the life of a startup using text from startup websites. I use this measure to show there is a selection effect where VCs give first round funding to less innovative startups after FIRRMA. Finally, in a case study of the biotechnology industry, I show that impacted startups suspend drug projects at higher rates, and in particular their risky projects. In the second chapter, joint with Johnathan Jensen, we study municipal cyber risk. Cyber attacks are estimated to cost billions of dollars per year. However, cyber risk is hard to study since companies rarely disclose hacks and don’t share information on cyber security investment. This paper takes a novel approach by looking at municipal hacking. We use a dataset of municipal ransomware attacks merged with hand collected IT investment data and municipal bond data. We find that lower IT investment predicts hacking. Furthermore, following a ransomware attack, municipal bond yields fall by 13 basis points and IT investment as a share of total town expenditure increases by 23 basis points. We investigate potential channels leading to decreased yields post hacking. We find evidence that being hacked reduces cyber risk by disciplining municipalities to move closer to the optimal level of IT spending. The third chapter investigates the impact of firm data collection and analysis of collected data on the riskiness of firm cash flows. I use a scraped data set of the third party resources loaded on firms’ websites as a measure of firm data collection and analysis practices. I find that firm u se of less effective web analytics is as sociated with an increase in the variance of sales, inventory, and both fixed and variable costs. This effect is de spite a lack of change in the level of these variables. Looking at the effect of treatment on the treated, there i s higher profit and sales variance during times of higher uncertainty. I use differences in web analytics technology and a change in their relative effectiveness as my identification strategy. As a case study of a large negative demand shock, I look at differences in fi rm reactions to COVID-19 based on their web analytics usage. | |
