Working Papers

Patent Intensity, Firm Life-Cycle Dynamics, and the Pricing of Technological Innovators

joint with Adlai Fisher, Jiri Knesl, and Julian Vahl

We introduce patent intensity (PI) - patents granted divided by market capitalization - to classify technological-innovator types starting from 1926. High-PI firms represent ten percent of total market capitalization but over half of five year-forward public-company patenting. PI-sorted portfolios earn significant return spreads for a decade post-formation, with low turnover. Alphas controlling for standard factors are persistently large, and innovators are punished less for aggressive investment and weak profitability. Adding an expected growth factor resolves mispricing across horizons, with loadings showing high, declining growth, aggressive, increasing investment, and weak, improving profitability. Patent intensity captures life-cycle dynamics in fundamentals, loadings, and returns.

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Machines Could Not Compete with Chinese Labor: Evidence from U.S. Firms' Innovation

joint with Elena Simintzi

We study how multinational firms' ability to lower the cost of production through access to offshore labor affects their decisions to develop new production technologies. We use the 1999 U.S.-China bilateral agreement, which led to an improvement in contracting institutions in China and reduced uncertainty for U.S. multinationals, allowing them to source labor cheaply through FDI. Using subsidiary-level data from China matched to U.S. parent companies, we show that U.S. firms scale up their Chinese operations following the agreement, as compared to other foreign subsidiaries, and their subsidiaries become more profitable. We create a novel measure of innovation and show that U.S. multinationals with subsidiaries in China decrease their process innovations—innovations that improve firms' own production methods—following the agreement. These findings suggest that firms' ability to source labor cheaply across borders affects the development of technologies at home, highlighting that production and technological choices are jointly determined.

Working paper

Financing the Global Shift to Electric Mobility

joint with Bo Bian and Huan Tang

Using comprehensive auto loan data, we identify a gap in financing terms between Electric Vehicles (EVs) and non-EVs. EVs, compared to their non-electric counterparts in the same make-model or make-model-power category, are financed with higher interest rates, lower loan-to-value ratios, and shorter loan durations. The primary driver of this financing gap is the risk associated with EVs. The rapid and uncertain progress in EV-specific technologies accelerates obsolescence, reducing EVs' resale value and thus increasing the cost associated with loans for these vehicles. Factors such as car buyers' willingness to pay, socioeconomic characteristics, government incentives for EVs, lenders' market power, and macroeconomic conditions play minimal roles in explaining the higher cost of EV loans. Our findings highlight that technological carbon-transition risk is priced in financing terms of green durable assets consumption.

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Token-based Decentralized Governance, Data Economy and Platform Business Model

joint with Shiqi Zhang

The growing importance of data as an input for platform businesses, combined with users' concerns about sharing their personal data, raises questions how to balance efficiency and fairness in governing these platforms. As a potential solution, we examine the decentralized governance of a platform that utilizes governance tokens issued to users. We explore the incentives for founders to establish platforms with decentralized governance and the resulting benefits for users. Decentralized platforms lead to a greater surplus for users compared to traditional, centrally governed platforms, enhancing fairness. In 'data-heavy' platforms, a buy-back market for governance tokens emerges, enabling the founder to promote early platform adoption by committing to future transferability of tokens among users. Consequently, the platform's founder can achieve equal or greater output compared to a centrally governed platform, which provides a rationale for token issuance. Regulations that limit data sharing negatively impact stakeholders of decentralized platforms, while they might protect users in centralized ones. Token-based decentralized governance offers a way to align the interests of platform founders with those of users.

Working paper

Owner Culture and Pay Inequality within Firms

joint with Guangli Lu and Iris Wang

Using a comprehensive dataset of employee-employer-firm owner-immigration records in 2001-2017, we examine the impact of immigrant owners' national culture on within-firm pay inequality. Firms owned by immigrants from more individualistic countries exhibit higher pay dispersion among employees. This result is robust across various empirical methods, including difference-in-differences analysis of ownership changes. Owners' individualism is associated with their employee compensation structures: more frequent and larger performance pay components—especially for highly educated employees, quicker promotions to high-paying positions, and less pay compression. These findings highlight the role of culture in shaping pay practices and elucidate broader determinants of income inequality.

Working paper

Relationship-Specific Investments and Firms’ Boundaries: Evidence from Textual Analysis of Patents

joint with Isil Erel, Daisy Wang, and Michael S. Weisbach

The hold-up problem can impair firms’ abilities to make relationship-specific investments through contracts. Ownership changes can mitigate this problem. To evaluate changes in the specificity of human capital investments, we perform textual analyses of patents filed by lead inventors from both acquirer and target firms before and after acquisitions. Inventors whose human capital is highly complementary with the patent portfolios of their acquisition partners are more likely to stay with the combined firm post-deal and subsequently make their investments more specific to the partner’s assets. As ownership of another firm results in increasingly specific investments to that firm’s assets, contracting issues related to relationship-specific investments is likely a motive for acquisitions.

Working paper

Mutual Fund Disagreement and Firm Value: Passive vs. Active Voice

joint with Iris Wang

Using mutual funds’ proxy voting behavior, we construct a novel measure of shareholder disagreement between passive and active mutual funds. To create the measure, we use mutual funds’ voting decisions to capture the difference in “approval of management” between passive and active funds. We find that the disagreement among the two groups destroys firm value when the vote outcome of a proposal is not perfectly anticipated—viable. Using Federal Open Market Committee announcements with press conferences as events that create scope for investors to interpret news differently for individual firms, we show that such value-destroying effect is causal. When proposals are not viable, the presence of disagreement increases firm value. We show evidence consistent with such disagreement being a form of shareholder engagement that is interpreted in a positive way by the financial market participants.

Working paper

Relative Pricing of Private and Public Debt: The Role of Money Creation Channel

joint with Isha Agarwal and Joyce Xuejing Guan

We examine how the money creation function of banks affects the relative cost of firm financing in the bank loan vs public bond market – the loan-bond spread. Using a sample of loans and bonds issued by the same firm with the same maturity and at the same time, we show that the loan-bond spread is lower for firms impacted by information cost shocks. We call this decline in the relative cost of bank credit induced by firm information cost shock the opacity discount and provide evidence suggesting that the discount obtains due to the ‘money creation’ mechanism in the theory of financial intermediation according to which banks need to keep information about their assets secret to produce private money.

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