Imogen Rose Smith, Phillip Auerswald & Gitanjali Swamy

This paper is a study of the impact sexually predatory behavior has on venture capital and private equity fund performance. We hypothesize that predatory behavior is a poor management practice that leads to poor investment performance. To test our hypothesis, we construct the Predatory Behavior Index, a fund-scale index of predatory behavior. We do this by establishing an order relation between different types of predatory behavior, gathering validated information from legal filings to score the index value, and creating a weighted sum from the scoring to derive the final index value. We explore the extent to which predatory behavior is correlated with unnecessary risk-taking in other spheres of business activity that adversely impacts investment outcomes, including systematically poor investment judgment. We find statistically significant evidence of a positive correlation between predatory behavior and poor investment performance.