Working Papers

Multinational Firms and the International Transmission of Crises: The Real Economy Channel

(joint with Serdar Dinc and Isil Erel)
This paper studies investment and employment at a subsidiary located in a non-crisis country if its parent firm also has a subsidiary in a crisis country. It finds that investment is about 18% lower in the subsidiaries of these parents relative to the same-industry, same-country subsidiaries of multinational firms that do not have a subsidiary in a crisis country. Net new hiring of employees in these subsidiaries is also lower in these subsidiaries. These results hold for the parents that are unlikely financially constrained and are robust to controlling for subsidiary and parent size, parent cash flow, subsidiary country, industry, year, and parent country, as well as using alternative crisis definitions.
Working paper

Labor-induced Technological Change: Evidence from Doing Business in China

(joint with Elena Simintzi)
We study how the change in the price of labor affects the direction of technological change using a novel measure decomposing innovations into products (new goods) and processes (lower production costs). Using the 1999 U.S.-China agreement as a shock that lowered effective labor cost, we find that U.S. firms operating in China decrease their share of process innovations by 9% and that this adjustment is driven by lower process innovation. We obtain the same results using a staggered loosening of restrictions on foreign ownership across industries in China over 1995-2012. This suggests that cheap abundant labor substitutes for labor-saving innovation.
Working paper

Corporate Innovation and Returns

(joint with Lorenzo Garlappi)
Among U.S. public firms, technological innovation is concentrated in a small set of large players, with innovation "leaders" having considerably lower market betas than "laggards." To understand this fact, we build a model to study how competition in innovation affects rival firms' expected returns. In the model, a firm's expected return decreases in its innovation output and increases in the innovation output of its rival. We find strong support for these predictions using a comprehensive firm-level panel of information on patenting activity in the 1976-2006 period. Our findings suggest that the imperfect nature of competition has important implications for firms' expected returns.
Corporate Innovation and Returns (PDF, 500 kB)