Abstract

This dissertation studies the economic consequences of technical debt—the accumulated cost of expedient engineering decisions in a firm’s software codebase—and how external forces shape it. Using direct codebase analysis of over 80,000 monthly snapshots from 600+ open-core technology firms (2010–2025), I develop the first dollar-denominated measure of technical debt in the finance literature and apply it across two empirical settings. Chapter 1 examines whether venture capital monitoring extends to firms’ technical practices. Using a stacked difference-in-differences design around first VC entry (225 treated firms, 330 controls, 85 cohorts), I find that VC-backed firms reduce critical code defect density by 24% relative to the treated-group mean and lower technical debt by $0.97 per line of code. Defect levels remain stable as codebases scale by approximately 14.6%, indicating that new code is written to a higher standard rather than legacy code being remediated. The improvements are concentrated in institutionally-backed firms and are unaffected by hiring senior technical leaders, identifying governance and monitoring rather than capital or human capital as the operative channel. Chapter 2 studies whether cybersecurity vulnerabilities causally affect firm performance. Exploiting the public discovery of critical-severity (CVSS ≥ 9) vulnerabilities in third-party software dependencies as exogenous shocks (88 events, 38 cohorts, 284 firms), I show that exposed firms experience approximately 8 percentage points lower headcount growth and 1.5–1.7 percentage points lower acquisition probability post-shock. Mechanism evidence from commit-level analysis traces these effects to time-sensitive remediation: technical debt grows 16–20 percentage points faster in treated firms, cognitive complexity rises 16–21 percentage points faster, and the share of feature-related commits declines progressively over the post-shock year—consistent with crowding-out of innovation by maintenance. Together, the two chapters establish technical debt as a measurable, economically meaningful off-balance-sheet liability that responds to both positive shocks (institutional governance) and negative shocks (cybersecurity vulnerabilities), and provide a methodological framework for studying software-intensive firms in finance.

Committee Chair

Todd Gormley

Committee Members

Armando Gomes; Julie Fu; Margarita Tsoutsoura; Xiang Hui

Degree

Doctor of Philosophy (PhD)

Author's Department

Finance

Author's School

Olin Business School

Document Type

Dissertation

Date of Award

5-5-2026

Language

English (en)

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Finance Commons

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