Embedded Files
Working Papers
Cross-border Patenting and Corporate Debt Capacity
We use global patent data and exploit the staggered adoption of the Patent Prosecution Highway, a patent examination cooperation program to evaluate the effect of globalization of patents on debt capacity of firms. We show that patents filed globally are of higher quality, and loans to patenting firms increases. This increase is driven by a reduction in information asymmetry in global lending markets. We also find that firms obtain international loans in low-tax countries which leads to a lower average tax burden. This lower burden creates a higher debt capacity for patenting firms.
The Second Mover Advantage: R&D and Absorptive Capacity
(with Michael Ferguson, and Jayoung Yoon)
Absorptive capacity (AC) is the extent to which a firm can translate R&D spillovers from its technological counterparts into its own productivity. We employ a new measure of AC based on Total Factor Productivity. Our measure of AC is positively related to real innovative outcomes: small firms with high AC produce higher quantity and quality of patents. Small firms with High AC earn positive risk-adjusted returns. These returns are positively related to long-horizon mis-pricing factors, limits to arbitrage, and limited investor attention. They are incremental to other linkages between firms and other, recognized R&D underpricing factors.
(with Lora Dimitrova)
Abstract: We investigate whether financial innovation, specifically the use of foreign exchange (FX) derivative products, spurs firms’ technological innovation, measured with patent-based metrics. Using a quasi-exogenous shock that reduces the cost of using FX derivatives and varying FX equity exposure of firms, we find that increased utilization of FX derivatives results in higher patent production. The primary mechanism driving this relationship is the reduction in financial constraints and enhanced risk management. The effect is especially pronounced for firms facing difficulties in raising equity capital. Our results indicate that the use of FX derivatives boosts innovative output by improving firms’ ability to raise equity capital, thereby increasing R&D investment, rather than by increasing risk-taking.
Does Hedging Reduce the Cost of Delegation?
I incorporate the choice of hedging instrument into a moral hazard model to study the impact of derivatives on a firm's value. A hedging instrument creates value by minimizing the expected costs of distress. In the model, managers who exert effort on their project understand the underlying risk exposure well and, therefore, can choose the optimal instrument to use as a hedge. I show that the optimal hedging instrument maximizes the firm's value but does not reduce the noise in the compensation contract, thereby forcing investors to leave more rents to the manager. When the agency problem is severe, the investor induces the manager to exert low effort and to choose an imperfect hedge, which leads to a drop in the firm's value. I test the model by exploiting an exogenous shock (the Washington Agreement on Gold, 1999) to the cost of hedging in the gold mining industry and find strong support for the model's predictions.
Publications
(with Jonathan Brogaard, Joseph Engelberg, and Edward Van Wesep)
Management Science (accepted), https://doi.org/10.1287/mnsc.2022.00840
Papers published in economics journals whose first authors are famous have more citations than papers whose second or third authors are famous. As a paper ages, its citation rate varies most with variation in the fame of the first author and less so with the fame of second and third authors. Author order is alphabetical so these patterns are unrelated to underlying quality. The magnitudes we find are large: a three-author paper written by the most prolific author in economics and his two research assistants would receive, on average, more than double the citations if the prolific author were first rather than second or third. The effect is especially pronounced in three, rather than two, author papers, suggesting that burying a famous author in the “et al” reduces citations even further.
(with Lora Dimitrova)
Review of Finance, Volume 27, Issue 4, July 2023, Pages 1471–1519, https://doi.org/10.1093/rof/rfac057
Media mentions: Fraser Institute, and National Affairs
We examine the effect of staggered changes in state-level capital gains tax rates on Venture Capital (VC)-backed start-ups and show that an increase in tax rates reduces patent quantity and quality. The results are consistent with a reduction in VC effort: VC-level tax increases lead to incrementally lower patent production by start-ups located out-of-state, and not linked by a direct flight to the VC investor. We also find evidence of a change in entrepreneurs' incentives: after a tax increase entrepreneurs decrease innovation risk, and stay invested for longer (the lock-in effect).
Financial Management, Volume 48, Issue 3, Fall 2019, Pages 739-771, https://doi.org/10.1111/fima.12239
WRDS Award for Best PhD Student Paper: NFA Conference 2012
I investigate whether implementation of the mandatory bid rule – the rule that grants all shareholders the right to participate in a takeover transaction at equal terms – affects target announcement returns. I use a difference-in-differences approach and the staggered adoption of the rule across 15 European countries. I find that the rule change leads to higher target returns. In full transactions, better accounting standards and share-holder protection norms of the acquirer leads to higher target returns. In majority transactions, greater value transfer from acquirers with weak accounting standards leads to higher target returns. I find weak evidence of overpayment by acquirers.
Work In Progress
Inventors in Mergers (joint with I. Merkurieva)
Page updated
Google Sites
Report abuse