Stock Market Manipulation and Corporate Venture Capital Investments

63 Pages Posted: 14 May 2023 Last revised: 20 Apr 2025

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University; European Corporate Governance Institute (ECGI)

Yuan Li

Florida Atlantic University

Yimeng Yu

Hangzhou Data Far East Technology Pty Ltd

Date Written: April 26, 2024

Abstract

We propose that stock price manipulation erodes trust, damages corporate reputation, reorients management towards short-termism, harms entrepreneurial innovation culture, and increases the cost of capital. We test these ideas by linking stock manipulation data to corporate venture capital data for firms listed on the NASDAQ and NYSE. The data indicate CVC investments in entrepreneurial firms are followed by a rise in market manipulation in the short run [-3 months, +3 months], but a decline thereafter. The data further indicates that stock manipulation harms the ability of CVCs to form investment syndicates and reduces the likelihood of successful IPO and acquisition exits. The hazard rate to IPO is 0.54 for CVC-backed firms that face market manipulation. Overall, the theory and evidence provide insights into how firm's stock manipulation can damage the effectiveness of their venture capital endeavors, ultimately contributing to sustainable growth and innovation.

Keywords: Market microstructure, Market manipulation, Corporate Venture capital, Syndication, IPO Exit JEL Codes: G14, G24

JEL Classification: G14, G24

Suggested Citation

Cumming, Douglas J. and Li, Yuan and Yu, Yimeng, Stock Market Manipulation and Corporate Venture Capital Investments (April 26, 2024). Available at SSRN: https://ssrn.com/abstract=4427743 or http://dx.doi.org/10.2139/ssrn.4427743

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/douglascumming/bio?authuser=0

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/douglas-cumming

Yuan Li

Florida Atlantic University ( email )

Boca Raton, FL 33431
United States

Yimeng Yu

Hangzhou Data Far East Technology Pty Ltd

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