“Sex and Startups”
With Talia Gillis and Eric Talley
Venture Capital (VC) has a gender problem. The sector has long been (and still is) dominated by men on both the investor and recipient sides, and this imbalance is thought to affect who gets to play, who gets funded, and who gets left behind. Nevertheless, reliable data about early-stage startups remain sparse, and we still know surprisingly little about whether (and how) internal cash-flow and governance entitlements within startups manifest gender effects. This paper develops and studies a unique data set that tracks VC-backed startups along both financial and governance dimensions. It allows us to observe how cash flow and control rights emerge and evolve through successive rounds of startup funding, as well as the detailed structure and evolution of governance provisions that regulate internal corporate affairs. We use this resource to assess whether the gender of a startup’s founder predicts differential financial and/or governance terms that regulate, enable, and (by turns) frustrate founders’ discretion in relation to their VC investors. Our still-preliminary findings are mixed: On the one hand, female founders in our sample do not appear to face capital structures or cash flow entitlements that differ substantially from a matched sample of similarly situated firms with male founders, at least with respect to the narrow set of variables our data currently include. However, we find evidence that the firm governance provisions female founders face (as captured by the latent content of corporate charters) differs measurably from matched male.
With Eric Talley
This paper investigates corporations’ decisions to adopt officer-protections waivers of the duty of care following a significant shift in Delaware corporate law that permitted the adoptions of such waivers for the first time. Despite predictions of widespread adoption, our study reveals a notably restrained response among corporations to this legal evolution. Using a novel dataset based on our earlier work but updated substantially with the help of automated methods including OpenAI’s ChatGPT, we assess the rate and nature of adoption of these new waivers among Delaware-incorporated companies.
Our analysis finds that in the first year post-amendment, only a small minority of corporations amended their charters to incorporate these officer-exculpating provisions. This cautious uptake challenges prior expectations and hints at a more complex interplay between legal reform and corporate behavior. Notably, even most companies that went public after the reform’s enactment did not adopt these waivers, suggesting factors other than transactions costs associated with charter changes were behind corporations’ muted response. We also investigate stock market reactions and find that while the market overall perceived the reform as modestly positive, individual company decisions to adopt officer-exculpating waivers were met with a range of responses, from neutral to slightly negative, potentially reflecting concerns about governance quality and risk management.
This paper contributes to the scholarly discourse in several ways. First, it provides novel evidence on the 2022 amendment's impact. Second, it adds to discussions on contractual evolution, addressing the role of the complexity of charter amendments and the absence of standardized language in influencing adoption rates. Lastly, we demonstrate the efficacy of leveraging large language model-based tools for legal research, underscoring the importance of method validation in ensuring data reliability.
With Cathy Hwang, Yaron Nilli and Eric Talley
In this follow-up project to Cleaning Corporate Governance (170 University of Pennsylvania Law Review 1), we assemble a dataset containing the complete bylaws histories of ~3,000 publicly traded companies. We will use this dataset for various purposes, including replication studies in which we investigate the validity of several of the most cited studies in empirical law & finance.
“Incomplete Contracts and Future Data Usage”
With Talia Gillis and Dan Svirsky
Most major jurisdictions require websites to provide customers with privacy policies. While privacy policies' most important function is to provide consumers with a description of online service providers' current privacy practices, we argue that these policies also serve a second, often-overlooked function: they allocate among online services and consumers residual property rights over data, and along with this, the power to decide whether a service can modify its privacy practices and use consumer data in novel ways. We further argue that a central feature of the E.U.'s General Data Protection Regulation (GDPR), one of the most comprehensive and far-reaching privacy regulatory regimes, is to restrict privacy policies from allocating broad rights for future data usage to service providers. We provide a theoretical explanation for this type of regulatory intervention by adapting standard models of incomplete contracts to privacy policies. We then use the model to explain how U.S. firms reacted to the GDPR. We show that U.S. websites with E.U. exposure were more likely to change their U.S. privacy policies to have less stringent and more lenient modification rules. Among websites that do not have E.U. exposure, we see the opposite trend. These results suggest that websites sought to increase their share of residual rights over data usage in the wake of GDPR.