This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

« Back to Results

Innovation Investment: Human Capital and Stressful Situations

Paper Session

Saturday, Jan. 6, 2018 8:00 AM - 10:00 AM

Loews Philadelphia, Regency Ballroom C2
Hosted By: American Finance Association
  • Chair: Arpit Gupta, New York University

The Role of Human Capital: Evidence From Patent Generation

Tong Liu
,
University of Pennsylvania
Yifei Mao
,
Cornell University
Xuan Tian
,
Tsinghua University

Abstract

This paper studies the role of inventor- and firm-specific heterogeneities in promoting a firm’s innovation output. Decomposing the variation in innovation output, we find that time-invariant inventor fixed effects explain a majority of the variation in innovation performance in terms of patent counts and citations, while inventor fixed effects play a relatively less important role in explaining innovation style in terms of patent exploratory and exploitive scores. In the cross section, inventors contribute more to innovation output when they are better connected, in firms with higher inventor mobility, and in industries in which innovation is more difficult to achieve. Additional tests suggest that our main findings are unlikely to be driven by inventors’ endogenous moving. This paper highlights the importance of individual inventors in enhancing firm innovation output and sheds new light on the theory of the firm.

Roadblock to Innovation: The Role of Patent Litigation in Corporate R&D

Filippo Mezzanotti
,
Northwestern University

Abstract

Using a difference-in-difference design around the Supreme Court decision “eBay vs. MercExchange,” I examine how patent enforcement can affect corporate R&D. To identify the effects of the decision, I compare innovative activity across firms that were differentially exposed to patent litigation before the ruling. Across several measures, I find that the decision led to a general increase in innovation. This result confirms that the changes in enforcement induced by the ruling were successful in reducing part of the distortions caused by patent litigation. Exploring the channels, the results show that patent litigation negatively affects investment because it lowers the returns from R&D and exacerbates its financing constraints.

Bankruptcy, Team-specific Human Capital, and Innovation: Evidence From United States Inventors

Ramin Baghai
,
Stockholm School of Economics
Rui C. Silva
,
London Business School
Luofu Ye
,
London Business School

Abstract

This paper studies the impact of bankruptcies on the career and productivity of inventors in the U.S. We find that when inventor teams are dissolved because of bankruptcy, inventors subsequently become less productive. When, instead, inventor teams remain intact and jointly move to a new firm, their post-bankruptcy productivity increases. Consistent with the labor market recognizing the value of team stability, we find that the probability of joint inventor reallocation post-bankruptcy is positively associated with past collaboration. Our results highlight the important role of team-specific human capital and team stability for the production of knowledge in the economy, and shed light on the microeconomic channels by which the process of “creative destruction” operates.

Does Economic Insecurity Affect Employee Innovation?

Shai Bernstein
,
Stanford University
Timothy James McQuade
,
Stanford University
Richard R. Townsend
,
University of California-San Diego

Abstract

Over the past several decades, economic insecurity among U.S. households has been steadily increasing. The effects of economic insecurity on consumption have been well-studied, however, little is known about whether there are broader impacts. In this paper, we study whether economic insecurity, stemming from declines in housing wealth during the 2008 financial crisis, affects the propensity of employees to pursue risky projects at work. We examine this question through the lens of technological innovation, which has long been thought to be a key driver of economic growth and productivity. Using a unique dataset that links the output of patent inventors with their housing transactions, we find that employees that experienced a negative shock to their housing wealth during the crisis pursued less risky projects relative to others in the same firm and metropolitan area. The effects are more pronounced among employees with limited outside labor market opportunities, and among employees who had little equity in their house before the crisis. Overall, these findings are consistent with a career concerns model in which negative housing wealth shocks lead to lower failure tolerance due to costly default concerns and therefore reduced risk taking within the firm.
Discussant(s)
Tania Babina
,
Columbia University
Lauren Cohen
,
Harvard Business School
Benjamin Iverson
,
Brigham Young University
Arpit Gupta
,
New York University
JEL Classifications
  • G3 - Corporate Finance and Governance