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' access to offshore labor affects their decisions to develop new production technologies. The 1999 U.S.-China bilateral agreement improved contracting institutions in China, reducing uncertainty for U.S. multinationals and enabling cheaper labor sourcing through FDI. Using data from U.S. parent companies and their Chinese subsidiaries, we show that U.S. firms expanded their Chinese operations and increased subsidiaries' profitability post-agreement. Our novel measure reveals that U.S. multinationals reduced process innovations after the agreement. These findings highlight the impact of cross-border labor sourcing on domestic technological development, highlighting that production and technological choices of multinationals 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 find that early-stage electric vehicles (EVs), compared to their internal combustion engine counterparts within the same model series, are financed with higher interest rates, lower loan-to-value ratios, and shorter durations. This financing gap is driven by lower and more volatile resale values of early-stage EVs, stemming from rapid technological advancements in EV-specific technologies. This technological obsolescence raises collateral risk, leading to tighter loan terms. Other factors, such as buyer preferences, socioeconomic traits, government incentives, and macroeconomic conditions, have minimal impact. Our findings show that technological carbon-transition risks are reflected in household finance products.

Working paper

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 have higher pay dispersion among employees. Individualism alone explains more than half of the variation in within-firm pay inequality across owners' countries in our sample. 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 prominent 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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