Corporate PIPEs and the Boundaries of the Firm: Evidence From Innovation

50 Pages Posted: 9 Feb 2022 Last revised: 16 Apr 2023

See all articles by Matthew T. Billett

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance

Ioannis V. Floros

University of Wisconsin - Milwaukee - Department of Finance

Xuan Tian

Tsinghua University - PBC School of Finance

Date Written: February 10, 2022

Abstract

We explore the innovation of corporations issuing PIPEs (Private Investments in Public Equity) that are financed by other corporations. PIPE issuers exhibit a positive relation between their future innovation activity and the innovation capability of the corporate investor. This relation strengthens when the issuer’s and investor’s technical abilities overlap. These PIPE financings often coincide with material contracts indicating strategic collaborations between the issuer and the investor. In these instances, consistent with knowledge sharing and spillover, we find that PIPEs accompanying strategic product market interactions associate with even greater future issuer innovation. We conclude that PIPEs help align incentives in the face of incomplete contracting and facilitate expansion of firm boundaries to exploit investment opportunities that require knowledge sharing.

Keywords: Innovation activity; strategic collaboration; corporate private placements; knowledge sharing; contracting

JEL Classification: G10; G14; G24; G32

Suggested Citation

Billett, Matthew T. and Floros, Ioannis V. and Tian, Xuan, Corporate PIPEs and the Boundaries of the Firm: Evidence From Innovation (February 10, 2022). Kelley School of Business Research Paper No. 2022-07, PBCSF-NIFR Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=4028894 or http://dx.doi.org/10.2139/ssrn.4028894

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3366 (Phone)

Ioannis V. Floros (Contact Author)

University of Wisconsin - Milwaukee - Department of Finance ( email )

Milwaukee, WI 53201-0742
United States

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

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