Finance Seminar – Joint with SAFE
Speaker: Alejandro Drexler, University of Texas
Title: "Inter-Company Matching and the Supply of Informed Capital" (joint work with Fernando Anjos)
Abstract: We model an economy where it is technologically beneﬁcial for high-type companies to collaborate with other high types (assortative matching), and where the assortative-matching pattern allows informed ﬁnanciers to access proﬁtable investment opportunities as they learn about their current ventures. The model predicts that the economy is in one of two equilibria: (i) an informed-ﬁnance-only regime, where output level is directly determined by the supply of informed capital; or (ii) a regime where uninformed capital markets operate and many more projects are ﬁnanced. The feasibility of the large-scale production regime strictly requires assortative matching, which only obtains in equilibrium if the supply of informed capital exceeds a critical threshold. Whenever the critical threshold is binding, large-scale production is more efficient than the informed-ﬁnance-only regime at the threshold. We also conduct a brief empirical analysis - combining data on alliances and venture-capital (VC) deals - that yields results consistent with the mechanisms proposed in the model, and uncovers novel important connections between inter-company alliances, VC-company matching, and company success rates.