Artificial Intelligence, Human Capital, and Innovation with Michael Gofman (R&R, the Journal of Finance)
The data for our AI Brain Drain Index can be downloaded here.
Human capital is essential to AI-driven innovation. The scarcity of the human capital needed for AI R&D created an unprecedented brain drain of AI professors from North American universities into the industry between 2004 and 2018. We provide a causal evidence that AI faculty departures from universities reduced the creation of startups by students who then graduated from these universities. On the intensive margin, these departures also reduce the early-stage funding graduates' startups receive. The disruption in the knowledge transfer from professors to students emerges as the main channel for the negative effect of the human capital reallocation for innovation.
Selected Media Coverage: UoR Newscenter
I identify a specific channel (the prospect of getting funded or acquired by large firms) through which entrepreneurship is affected. By exploiting the variation across entrepreneurs' reactions to the two announcements of Amazon's new headquarters (HQ2) search, I find that after the announcement of the 20 finalist cities, new startups that are the potential funding or acquisition targets of Amazon are more likely to be established in one of those 20 cities. After the winning cities were selected, the newly created potential targets of Amazon are more likely to be founded only in the winning cities but not in the losing finalist cities. I also find that there exists a local competition for startups to get funded or acquired by Amazon, which is inconsistent with agglomeration explanation. I present evidence consistent with two possible underlying mechanisms: the synergy benefits from selling out to large firms and the difficulty in obtaining early-stage funding from non-corporate investors.
This paper investigates the spillover effects of private equity (PE) buyouts on innovation of the targets' public industry rivals. Using patent-based metrics, I find a robust positive effect of PE buyouts on innovation outcomes of the targets' industry peers and direct competitors. Moreover, I argue that the positive effect is causal by constructing an instrumental variable as a proxy for PE firms' industry experience and focus. Finally, I present evidence that PE buyouts affect industry innovation likely through forcing the targets' rivals to become more focused.
Work in Progress
Institutional Investors and Financial Media Coverage with Shuaiyu Chen and John Yang
We study whether institutional investors affect their portfolio firms' financial media coverage through their media firms' ownership. We find that a financial news outlet issues more positive articles covering the firms in its blockholders' portfolios. The articles' positivity is measured by the stock market reaction to the articles and the articles' overall tone. Moreover, we argue that this effect is causal by 1) fully controlling for a firm's time-variant fundamentals via exploiting within firm-quarter variation in media ownership and coverage and 2) exploiting exogenous variation in media ownership based on the merger of institutional investors. This effect is stronger when the covered firms have higher weights in the blockholders' portfolios and when the blockholders are active investors. We also find that higher ownership of financial media outlets leads to larger fund inflows and that larger outflows could predict higher future ownership of financial media outlets. Overall, we document robust causal evidence that institutional investors influence media coverage through their media ownership.
Intellectual Property Rights, Corporate Giants, and Entrepreneurship with Mingzhi Xu and John Yang
The ASEAN Business Research Initiative Grant ($15,000 Singapore Dollar)
We investigate how intellectual property rights (IPRs) affect new business creation and startup financing when entrepreneurs face corporate giants.