Xiyue (Ellen) Li
Welcome! I am an Assistant Professor of Finance at the Chinese University of Hong Kong (Shenzhen). I obtained my Ph.D. from the University of British Columbia in 2024.
Research interests: Entrepreneurial Finance, Corporate Innovation, Venture Capital, Financial Intermediation
Email: lixiyue [at] cuhk.edu.cn
I show that information frictions in valuation can lead startups to select projects that align with the expertise of potential venture capital (VC) investors, a strategy I refer to as catering. First, I build a theoretical model where a startup trades off project quality with the informational benefits of catering. The startup selects catering when alternative information sources are limited or VC investors demonstrate proficiency in valuing projects close to their expertise. Second, using textual data from patent applications, I define catering projects as patent applications that deviate from the founders' experience toward VC's expertise. Consistent with model predictions, catering applications are more prevalent when patent examination is slow or VCs utilize past data to screen new deals. Catering applications are 9.3% less likely to get patent approval, suggesting low project quality. Overall, this paper shows that specialized financial intermediaries, such as VC, can broadly shape new technology developed by firms outside their portfolios.
We build a new century-long dataset of technology life cycles from USPTO patent titles, tracing 289 prominent technologies from initiation through emergence, prominence, and maturity over 1920-2023, and linking their patent histories to 9,047 global public firms. The earliest patents in prominent technologies are disproportionately influential and are primarily assigned to firms, especially large innovators. Decades before prominence, firms that patent early invest more, grow faster, and command higher valuation ratios. As technologies approach prominence, valuation premia compress even as profit margins and return on invested capital improve. After prominence, innovation becomes less foundational, pioneers' patent-share advantages erode only slowly on average, and the investment, growth, and valuation advantages of early participation fade or reverse. The erosion of early patent-share leadership is fastest when early competition among large innovators is intense.
How Do Nonbank Mortgage Lenders Shape Bank Small Business Lending? (with Dongliang Lu and Keling Zheng)
We investigate the impact of nonbank expansion in the mortgage market on bank’s lending portfolios. Employing a difference-in-differences approach based on regulatory changes that reduce nonbank lending costs, we find: 1) Nonbank expansion decreases bank mortgage market share amid no changes in total mortgage lending. 2) Diversified banks increase credit supply and offer lower rates to small business lending in counties with more nonbank expansion. 3) Within bank and county credit reallocation increases local small business entry and employment in the tradable sector. We develop a conceptual framework to show frictions in cross-county capital allocation drive the results. Our results highlight the distributional consequences of nonbank expansion in the small business lending market.
Venture Capital Stage Financing, Portfolio Choice, and Entrepreneur Risk-taking
Stage financing is a common practice among venture capitalists to support startup firms. This paper shows that stage financing creates an agency conflict between VC and the entrepreneur when it prevents the entrepreneur from taking risks. VC can mitigate this agency conflict by increasing portfolio size in the early investment stage to arrange a winner-takes-all tournament for refinancing. When VC allocates most capital to the startup that generates a higher return, entrepreneurs have an increasing marginal benefit as the return goes up. Such a benefit incentivizes entrepreneurs to take risks. The model generates a rich set of implications consistent with existing empirical findings on startup performance.
