Aihuan Zhang

Job Market Paper: Political Distance and Venture Capital Match Formation

I study whether partisan separation between investor and startup locations creates screening frictions in venture capital. Using county-level presidential vote shares to measure political distance (PD), I find that higher PD between VC and startup counties significantly reduces investment incidence. A one-standard-deviation increase in PD lowers the likelihood of match formation by 0.7–0.8 percentage points—roughly eight percent of the baseline rate. The effect amplifies in opaque settings—first rounds, young startups, and VC first entries—and attenuates in information-rich environments such as VC hubs and during the pandemic. I find little support for alternative mechanisms: VC capability, systematic political risk, sectoral exposure, or geographic distance. Conditional on funding, higher-PD deals exhibit better outcomes, consistent with tighter screening. The evidence suggests this friction operates primarily through information asymmetries in the screening process. These findings reveal how geographic political sorting creates tangible costs in entrepreneurial finance, with implications for regional innovation policy and capital allocation efficiency.

Brand Equity and Debt Diversification (with David C. Mauer, and Miaomiao Yu) 📄 View on SSRN

Revise & Resubmit at Financial Management
Presentations: FMA 2024, SFA 2024, University of Alabama, Louisiana State University

The optimal number of debt types in firms’ debt structures is determined by a tradeoff between the costs of coordination failure and the benefits of reducing holdup problems. Brand equity affects this tradeoff by signaling larger and more stable future cash flows and greater awareness of firms’ products and services. We argue that these characteristics may allow for greater debt diversity by decreasing expected costs of coordination failure while enhancing the benefits of reduced holdup problems. Using trademarks to construct brand equity measures, we find that more valuable brand equity positively predicts debt diversity. Natural experiments and IV analysis help establish causality. Cross-sectional analysis shows that the brand equity and debt diversity relationship is stronger when firms face more intense product market competition and information asymmetry.

The Role of Financial Investors in FinTech Equity Financing

This study examines whether financial institution-backed venture capital (FI-VC) enhances FinTech startups' ability to raise subsequent equity financing. Using global data on 2,891 FinTech startups from 2010- 2024, I employ discrete-time logit models to estimate the probability of securing new equity rounds. FinTech startups backed by FI-VC exhibit 50% higher odds of raising subsequent financing (p<0.001). Survival analysis confirms FI-VC-backed startups are 33% more likely to secure financing at any point in time. The effect is stronger for later-stage investments and varied by COVID-19 timing. Results suggest financial institution backing serves as a quality signal, reducing information asymmetries for future investors.