Research

1) Non-Standard Errors (with Albert J. Menkveld and a consortium) (forthcoming, Journal of Finance)

In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in sample estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty: non-standard errors. To study them, we let 164 teams test six hypotheses on the same sample. We find that non-standard errors are sizeable, on par with standard errors. Their size (i) co-varies only weakly with team merits, reproducibility, or peer rating, (ii) declines significantly after peer-feedback, and (iii) is underestimated by participants.

2) Intellectual Property Protection Lost and Competition: An Examination Using Large Language Models (with Utku U. Acikalin, Gerard Hoberg and Gordon M. Phillips) (Revise and Resubmit, Journal of Financial Economics)

Presented at (*: by coauthor): NBER Big Data and High-Performance Computing for Financial Economics (scheduled), NBER Summer Institute

Innovation workshop (scheduled), EFA, RCFS Winter Conference,  Columbia University*, Harvard Business School*, Stanford University *(scheduled) University of Alberta*, University of Amsterdam, UCLA*, University of Maryland , and University of Notre Dame*

We examine the impact of lost intellectual property protection on innovation, competition, mergers and acquisitions and employment agreements. We consider firms whose ability to protect intellectual property (IP) using patents is potentially invalidated following the Alice vs. CLS Bank International Supreme Court decision. This decision has impacted patents in multiple areas including business methods, software, and bioinformatics. We use state-of-the-art machine learning techniques to identify firms’ existing patent portfolios’ potential exposure to the Alice decision. While all affected firms decrease patenting post-Alice, we find an unequal impact of decreased patent protection. Large affected firms benefit as their sales and market valuations increase, and their exposure to lawsuits through patent trolls decrease. They also acquire fewer firms post-Alice. Small affected firms lose as they face increased competition, product market encroachment, and lower profits and valuations. They increase R&D and have their employees sign more nondisclosure and noncompete agreements.

3) Effects of Patent Rights on Acquisitions and Small Firm R&D (Revise and Resubmit, Journal of Financial Economics)

Presented at: FOM Conference (Dartmouth College), SFS Cavalcade (Toronto), EFA (Oslo), CEPR ESSFM  Corporate  Finance  Conference  (Gerzensee),  FIRS  (Iceland),  Searle  Conference  on  Innovation  Economics(Northwestern-Kellogg), Entrepreneurial Finance and Innovation Conference (Brandeis University), CELS (UC Berkeley Law School), WELS Conference (UCLA Law School), Junior Empirical Legal Scholars Workshop (Jerusalem), Tilburg Competition, Standardization, and Innovation Conference (Amsterdam), SGF Conference (Zurich)

I investigate how patent rights affect R&D incentives. For this purpose, I hand-collect detailed data on patent lawsuits in the Court of Appeals for the Federal Circuit (CAFC). Using historical decisions of randomly assigned judges as an instrument for lawsuit outcomes and a Supreme Court decision as an exogenous variation for patent enforcement, I find that infringers increase acquisitions to obtain substitute patents in a strong enforcement regime. Moreover, they also increase Corporate Venture Capital (CVC) financing and form more joint ventures. The increase in acquisition market liquidity and venture investments lead to innovation and successful outcomes for small firms. 

4) An IPO Pitfall: Patent Lawsuits (Revise and Resubmit, Journal of Financial and Quantitative Analysis)

Presented at: FIRS (Budapest, Scheduled), 4th SDU Finance Workshop (Odense-Denmark), Munich Summer Institute Conference, University of Amsterdam, and University of Groningen

I document a previously unexplored substantial cost of an initial public offering (IPO): patent lawsuits. I find that firms become targets of excessive patent lawsuits shortly before IPO completions, and the litigation intensity persists after firms become public. However, firms that withdraw their IPO filings do not experience an increase after the withdrawal date. Unlike IPOs, seasoned equity offerings (SEO) do not yield an increase in lawsuits.  Overall, these results show that going public makes firms vulnerable to costly lawsuits. Moreover, the percentage of IPO firms affected from patent lawsuits has been perilously soaring in the last two decades.

5) Big (Patent) Short: Hedge Funds and Unannounced Lawsuits (with Huseyin Gulen and Veronika Krepely Pool)

This paper documents evidence that hedge funds (HFs) use private information from their investments to trade on other companies.  Using unique trade level data, we find that HF shareholders of  plaintiffs short-sell defendant stocks before lawsuit announcements.  Moreover, the short-selling occurs only if the defendant experiences sizable negative lawsuit announcement returns. Our results also show that firms that have an increase in hedge fund ownership files more lawsuits.  Overall, the results demonstrate that HFs not only profit from the return of their investments but also from the private information that they gather from these investments.

6) What Determines the Design of Bank Loan Contracts? A New Channel

I investigate whether uncertainties in bankruptcy procedures shape financial contracting in the U.S. syndicated loan market. Utilizing a novel hand-collected data set, I exploit the application of substantive consolidation procedure in the U.S. bankruptcy courts. This procedure has two unique features that provide an elegant experimental framework. First, it removes seniorities granted in the original contracts, resulting unexpected huge losses on unsecured bank loans. Second, there is consensus among practitioners that its application is unpredictable since there is no specific provision in the U.S. Code. I find that after exposure, lenders transmit this shock to other clients as requiring collateral more often in their new loans. Moreover, if exposed lenders issue new unsecured loans, then they demand higher interest rate and tighter covenants, even controlling for bank capitalization, borrower and time fixed effects. To my knowledge, this is the first paper to show that uncertainties in the bankruptcy procedures provide an important friction in the loan market. Furthermore, this work complements the previous literature by providing a new channel for the determinants of optimal financial contracts. Results of this paper are also important for policy makers, who want to ease bank lending standards.