Working Paper
"Venture Capital Contracts and Heterogeneous Innovation". (Job Market Paper)
Award: Tapan Mitra Prize (U of Rochester), Conibear Prize (U of Rochester)
Presented at: 2025 St. Louis Fed, 2024 Student seminar (U of Rochester), 2024 EGSC (WashU in St. Louis), 2024 CAED (Penn State), 2024 AMES in E/SE Asia, 2024 Taiwan Economics Research
Abstract: This paper studies how venture capital (VC) shapes startups’ innovation choices by insuring against default risk, and explores the macroeconomic implications of this mechanism. I develop a dynamic general equilibrium model in which startups choose between conservative (low-risk, low-return) and aggressive (high-risk, high-return) innovation while endogenously selecting their financing mode. Debt financing features state uncontingent repayments and exposes startups to default. By contrast, a VC financing is state-contingent dynamic contract with one-sided limited commitment from startup. Evidence from a new dataset linking VC deals, balance sheets, and patents supports the model predictions: VC-backed startups begin with higher leverage, show greater post-financing profit dispersion, and generate more high-quality patents. Calibrated to financing and innovation data, eliminating VC reduces the aggregate output by 5 percent and the mass of large startups (above the 99th percentile) by 11 percent, despite only 0.2 percent of startups ever receiving VC.
"Land Property Rights Reforms and Agricultural Productivity", with Yan Bai, Chong Liu, and Wei Wang
Abstract: This paper investigates the impacts of two different yet related land property rights reforms on land mobility, misallocation, and agricultural productivity in China empirically and quantitatively. Land property rights in China are subject to a use-it-or-lose-it risk and a default risk. Each reform improves land property rights by eliminating one of the two risks. We empirically identify the positive causal impacts of each reform on land rentals and agricultural productivity. We then develop a quantitative general equilibrium model with the two risks that impede land mobility by distorting occupational choices of households, causing land misallocation. Using the estimated causal effects of the two reforms to discipline and validate our model, we gauge the magnitude of each risk and the size of the general equilibrium effect.
"Sovereign Default and the Disruption of Knowledge Diffusion".
Abstract: This paper shows that sovereign debt crises impose long-lasting growth costs by disrupting the diffusion of foreign technology. Using data on defaults and sudden stops, I document that emerging economies experience not only sharp contractions in output and trade but also persistent declines in patenting and total factor productivity. These losses are most severe in countries heavily reliant on imports from advanced economies, consistent with imports serving as a channel for learning from the global frontier. To account for these patterns, I develop a quantitative sovereign default model that embeds knowledge diffusion into the canonical Arellano (2008) framework. In the model, defaults restrict access to high-quality foreign intermediates, slowing the accumulation of domestic technology. Calibrated to Argentina’s 2001–02 crisis, the model attributes roughly one-third of the long-run output cost of default to the learning channel. The results highlight that sovereign crises reduce not only contemporaneous output but also long-run productivity growth, underscoring hidden costs of default beyond temporary recessions.
"Financial constraint, R&D, and inequality", with Yi-Chan Tsai.
Presented at: 2023 WEAI
Abstract: We examine the impact of financial frictions on R&D expenditures and the resulting distributional consequences on income across U.S. states. We find that the R&D expenditures of companies located in states with high levels of financial friction are significantly lower than those of companies in states with low levels of financial frictions. Specifically, a one-standard-deviation increase in a state’s level of financial frictions leads to a more than 80% decrease in the state’s total R&D expenditures. This effect occurs because most companies rely on external financing to engage in R&D, and companies located in states with higher levels of financial frictions find it harder to borrow external funds for R&D activities. We also find that R&D investment affects income inequality, with a lag. When total state-level R&D expenditures increase by 1%, the income share of the top 10%, top 5% and top 1% in the state will respectively increase by 0.1%, 0.08%, and 0.07% three periods after the R&D is conducted. In short, our empirical results show that lower levels of financial frictions lead to higher income inequality through increased R&D spending.
Working in Progress
"Startup Innovation Strategy with Idea Market".
Abstract: This paper examines how venture capital (VC) exit opportunities shape innovation by startups and incumbent firms. Using a novel dataset that matches VC investment deals to firm-level balance sheets from Compustat, I show that favorable IPO and M\&A markets alter both the intensity and the distribution of innovation. When exit opportunities improve, VC-backed startups pursue more ambitious innovation strategies, while incumbents respond by either accelerating their own R&D to defend market position or shifting toward acquiring innovative entrants. Empirically, I find that a 1 percent increase in VC investment leads to a 0.13 percent widening of the productivity gap between industry leaders and laggards, and a 1.1 percent increase in industry-level R&D the following year. To interpret these patterns, I develop a simple endogenous growth model showing that VC exits can amplify productivity dispersion in industries with initially smaller gaps. Together, the evidence and theory highlight a novel channel through which financial market conditions affect the direction of technological change, with implications for industrial policy and innovation-led growth.