Does corporate production of AI innovation create value?, 2025, with Ali Ahmadi, Roni Michaely, and Phuong-Anh Nguyen
Abstract: Yes, by decreasing firm risk, not by increasing profitability, and with investors taking years to recognize the value created. We start, using novel AI patent data, by documenting significant corporate production of AI innovation as early as 1990. Then, we show that a signification motivation for a firm's AI production is the mutually reinforcing effects of the firm's innovation capacity (exogenous R&D stock) and its labor inputs' AI exposure (both the firm's own and its customers'). We use the interaction of these two effects to instrument for AI production. We find that producing AI creates firm value through a large, permanent decrease in risk (cash flow and stock return, systematic and idiosyncratic). Further evidence suggests that AI lowers physical capital intensity and increases bargaining power for producing firms. The initial market reaction to AI patent announcements is economically small, but abnormal stock returns thereafter are significantly positive (about 5% per year) for (only) roughly three years, suggesting initial undervaluation followed by gradual correction. We find no evidence of investor learning, except during the past five years. We empirically distinguish producing AI innovation versus AI adoption, automation, general technology, and other potential confounds.
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Best Paper Award, Vietnam International Conference in Finance, 2025
Best Paper Award, Academy of Finance Conference, 2025
Best Paper Award, Eurasia Business and Economics Society Conference, 2025
Best Paper Award, Finance Symposium, 2024
Do analysts' preferences affect corporate policies?, 2013, with François Degeorge, François Derrien, and Sébastien Michenaud
Abstract: Technology spillovers across firms affect firm value, according to prior research, so information about them should matter to investors. We argue that technology spillovers increase the complexity and uncertainty of value relevant information about the firm, which makes information processing more costly, discourages it, and thereby increases information asymmetry between managers and investors. We find that not only does information asymmetry increase, but institutional ownership and analyst coverage both decrease, and uncertainty increases. We also find that investors underestimate long-term earnings, consistent with the positive abnormal stock returns that we also find.