"When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education." With Charlie Eaton and Constantine Yannelis.
R&R at the Review of Financial Studies.
This paper studies how private equity buyouts create value in higher education, a sector with opaque product quality that is heavily dependent on government subsidy. With novel data on 88 private equity deals and 994 schools with private equity ownership, we show that private equity buyouts lead to higher tuition and higher per-student debt. Exploiting loan limit increases, we find that private equity-owned schools are better able to capture government aid. After buyouts, we observe lower education inputs, graduation rates, student loan repayment rates, and earnings among graduates. While enrollment increases, neither changes to the student body composition nor a selection mechanism fully explain the results. In a subsidized industry, private equity owners’ high-powered incentives to maximize value may intensify focus on capturing government aid at the expense of consumer outcomes.
Howell, Sabrina T. “Joint Ventures and Technology Adoption: A Chinese Industrial Policy that Backfired.” Research Policy 47(8), 2018. [Journal website.]
To spur technology transfer, emerging market policymakers often require foreign firms to form joint ventures (JVs) with domestic firms. Through knowledge spillovers, JVs may reduce technology acquisition costs for domestic firms. Yet domestic firm rents from JVs could discourage innovation through a cannibalization effect. Which force dominates is an empirical question. I address it with novel data on China’s auto sector. In response to fuel economy standards requiring firms to upgrade technology or sacrifice quality, firms with JVs reduced quality and price relative to their counterparts. Consistent with cannibalization, firms with JVs drive the negative effect.
Howell, Sabrina, Lee, Henry, and Heal, Adam. 2014. “Leapfrogging or Stalling Out? Electric Vehicles in China.” Discussion Paper, Belfer Center for Science and International Affairs, Harvard Kennedy School.
Howell, Sabrina. 2013. “Pathways for Reducing Oil Consumption in the U.S.” Carbon War Room & Fuel Freedom Foundation Research Report.
Howell, Sabrina. 2009. “Jia You! (Add Oil!): Chinese Energy Security Strategy.” In Luft, Gal and Anne Korin, eds. Energy Security Challenges for the 21 Century. California: Praeger Publishing.
Smith, Anne E. and Sabrina Howell. 2009. “An Assessment of the Robustness of Visual Air Quality Preference Study Results.” Environmental Protection Agency Clean Air Scientific Advisory Committee (EPA CASAC) Particulate Matter Review, Public Comments, March 30.
Governments regularly subsidize new ventures to spur innovation. This paper conducts the first large-sample, quasi-experimental evaluation of R&D subsidies. I use data on ranked applicants to the U.S. Department of Energy’s SBIR grant program. An early stage award approximately doubles the probability that a firm receives subsequent venture capital and has large, positive impacts on patenting and revenue. These effects are stronger for more financially constrained firms. Certification, where the award contains information about firm quality, likely does not explain the grant effect. Instead, the grants are useful because they fund technology prototyping.
NON-PEER REVIEWED PUBLICATIONS
"Initial Coin Offerings: Financing Growth with Cryptocurrency Token Sales." With Marina Niessner and David Yermack.
R&R at the Review of Financial Studies.
Initial coin offerings (ICOs) are a significant innovation in entrepreneurial finance. The sale of a blockchain-based digital token associated with a specific platform or venture is a new financing instrument with some parallels to IPOs, venture capital, and pre-sale crowdfunding. We examine the relationship between issuer characteristics and measures of success, with a focus on liquidity, using 453 ICOs that collectively raise $5.7 billion. We also employ proprietary transaction data in a case study of Filecoin, one of the most successful ICOs. We find that liquidity and trading volume are higher when issuers offer voluntary disclosure, credibly commit to the project, and signal quality.
This paper explores whether and why private and public firms experience different costs of risk management. I exploit a natural experiment in highway procurement, which features diverse firms with common exposure to commodity risk. The Kansas government began to insure highway-paving firms against oil price risk in 2006. With a difference-in-differences design using data from 1998 to 2012, I evaluate the policy’s effect in Kansas relative to Iowa, which never introduced such a policy. A first step shows that the policy reduced procurement costs, increased competition, and reduced bid sensitivity to oil price volatility. This permits examining which firms exhibit more risk pass-through. I find the most pass-through among private firms with high credit risk and low industry diversification, and no pass-through for public firms. Family-owned firms do not have a higher cost of risk. Financial constraints and distress costs appear to best explain the cost of risk management, rather than risk aversion, information, or agency problems.
I am an Assistant Professor of Finance at NYU's Stern School of Business, and a Faculty Research Fellow at the National Bureau of Economic Research (NBER). My research and teaching focus on entrepreneurial finance, innovation, fintech, energy, and China.
Please click on the underlined titles below for PDF files.
Sabrina T. Howell
"IPO Intervention and Innovation: Evidence from China.” With Lin William Cong.
This paper asks whether restricting timely access to public equity markets affects innovation among firms that intend to go public. The Chinese government has suspended IPOs occasionally, exposing firms to indeterminate listing delays, which curtails timely access to equity capital and increases uncertainty. We find that suspension-induced delay substantially reduces innovation, measured using patenting activity. These effects begin during the delay period and endure for multiple years, while impacts on other firm outcomes are short-lived. Our results suggest that corporate innovation is cumulative, and that predictable, well-functioning IPO markets are important for firm value creation through innovation.
Berman, Jillian. 2018. "When private equity firms buy colleges, students often pay more." Sept 7.
Segal, Julie. 2018. "When Private Equity Wins and Consumers Lose." The Institutional Investor, Sept 4.
"Entrepreneurial Spillovers from Corporate R&D." With Tania Babina.
This paper documents that corporate R&D investment increases employee departures to entrepreneurship. We use U.S. Census data, and instrument for R&D with its tax credit-induced cost. The ideas or skills that spill into startups seem to benefit from focused, high-powered incentives; for example, R&D-induced startups are much more likely to receive venture capital. The effect also seems to reflect ideas or skills that are poor complements to the firm’s assets. As human capital is inalienable and portable, and startups are crucial to economic growth, R&D-induced labor reallocation to startups appears to be a novel channel of R&D spillovers.
Verkhivker, Alex. 2018. "How delaying IPOs has a big and lasting effect." Chicago Booth Review, March 14.
R&R at the The Journal of Financial Economics.
Venture capital, an important source of financing for potentially high-growth new businesses, is believed to suffer from information frictions. This paper quantifies the magnitude of these frictions among participants in new venture competitions. In a regression discontinuity design with data from 87 competitions, winning a round increases the chances of external financing by about 35 percent. Winning is most impactful for ventures ranked just above the cutoff but that receive no cash prize, and judge ranks strongly predict venture success. The results indicate that information problems in new venture finance are large, and competitions can help resolve them through certification.
Brookings Hutchins Roundup Dec 20, 2018.
Brin, Dina. 2018. "Corporate R&D Investment Appears To Spur Employees To Startup Venture Path." Forbes, Dec 30.
Arends, Brett. 2019. "The No. 1 reason why big, innovative companies suffer a ‘brain drain’". MarketWatch, Jan 14.
Council on Foreign Relations. 2015. "Keeping the Edge: U.S. Innovation." Report.
Smith, Noah. 2015. "Angel Investing, Government Style." Bloomberg. July 9.
Pethokoukis, James. 2015. "Uncle Sam, angel investor?" AEIdeas, July 15.
Davis, Lucas. 2015. "How Should We Design Government Policies to Stimulate Innovation?" Haas Energy Institute. March 23.
Gill, Dee. 2015. "Small, Early Stage R&D Grants to Energy Startups have Large Impact." Chicago Booth Daily Data. February 2.
Howell, Sabrina. 2014. "The Impact of Government Grants in the Clean Energy Sector." Cleantech Group. January 9.
Minsk, Ronald E., Sam P. Ori, and Sabrina Howell. “Plugging Cars into the Grid: Why the Government Should Make a Choice.” Energy Law Journal 30(2), 2009. [Journal website.]