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Manchester Grand Hyatt, Seaport H
Hosted By:
American Finance Association
Angel investor tax credits, which subsidize startup investment by wealthy individuals
(i.e. “angels”), are an attractive option because they allow the market to “pick
winners” and have relatively low administrative burdens. This paper studies these
programs using state-level event studies and a within-program comparison of tax
credit beneficiary firms with their rejected counterparts. We find no evidence that
angel tax credits have significant effects on local entrepreneurial activity. The
programs may have a limited effect in part because a large share of investor-company
pairs benefiting from the tax credits do not suffer from the severe information
asymmetry that is believed to cause financial constraints among early stage, risky,
and potentially high-growth startups. Indeed, just 9.5 percent of beneficiary
companies did not previously raise external equity, have no executive receiving an
investor tax credit, and have activities related to the IT/Web/Computer sector.
R&D, Patents, and Innovation
Paper Session
Saturday, Jan. 4, 2020 10:15 AM - 12:15 PM (PDT)
- Chair: Shai Bernstein, Stanford University
Shielding Firm Value: Employment Protection and Process Innovation
Abstract
An increase in labor dismissal costs leads firms to increase process innovation, namely innovation that reduces production costs, especially in industries with a large share of labor costs in total costs. Firms with high innovation ability adjust their production methods and mitigate the effects of increased labor rigidity. They exhibit larger increases in process innovation and capital intensity, and larger decreases in employment and employment growth. This allows them to increase labor productivity, operating performance, and ultimately to avoid value losses. Our evidence highlights that, by facilitating the adjustment of the input mix when market conditions change, innovation ability is a key driver of firm performance.United States Innovation and Chinese Competition for Innovation Production
Abstract
We examine how competitive shocks from China impact U.S. innovation through two margins: the markets for innovation and for existing products. Using Chinese data, we map each industry to province Internet penetration levels using geographic agglomeration data. The resulting industry-year database indicates the ability of Chinese firms to acquire knowledge globally and compete in the market for intellectual property production. Increases in provincial Chinese Internet penetration are followed by sharp reductions in R&D investment and subsequent patents for U.S. firms, and increased patenting by Chinese firms. The new Chinese patents also cite the patents of treated U.S. firms at a high rate, consistent with increased intellectual property competition. In contrast, U.S. firms with fewer growth options and more tangible assets tend to increase R&D and patenting activity. Overall, both competition in intellectual property by Chinese firms and the asset competition of U.S. firms influence U.S. firm innovation.Financing Entrepreneurship through the Tax Code: Angel Investor Tax Credits
Abstract
Many jurisdictions seek policy tools to stimulate high-growth entrepreneurship.Angel investor tax credits, which subsidize startup investment by wealthy individuals
(i.e. “angels”), are an attractive option because they allow the market to “pick
winners” and have relatively low administrative burdens. This paper studies these
programs using state-level event studies and a within-program comparison of tax
credit beneficiary firms with their rejected counterparts. We find no evidence that
angel tax credits have significant effects on local entrepreneurial activity. The
programs may have a limited effect in part because a large share of investor-company
pairs benefiting from the tax credits do not suffer from the severe information
asymmetry that is believed to cause financial constraints among early stage, risky,
and potentially high-growth startups. Indeed, just 9.5 percent of beneficiary
companies did not previously raise external equity, have no executive receiving an
investor tax credit, and have activities related to the IT/Web/Computer sector.
Discussant(s)
Danielle Li
,
Massachusetts Institute of Technology
Gustavo Manso
,
University of California-Berkeley
Adrien Matray
,
Princeton University
Daniel Paravisini
,
London School of Economics
JEL Classifications
- G3 - Corporate Finance and Governance