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Corporate Innovation and Returns
Corporate Innovation and Returns
星期四,2012-04-13 10:30-12:00
Room 505, Datong Building West Huaihai Road 211, SAIF
Lorenzo Garlappi

Corporate Innovation and Returns

Among U.S. public firms over the period 1976 – 2006, firms with a high share of patents, innovation ''leader'', have significantly lower unconditional market betas than innovation ‘laggards’’, implying a spread in expected returns of about half the market risk premium. Moreover, innovation is concentrated among a relatively small set of large players: the top 100 innovators account for most patents while representing about one fifth of the total market capitalization on average. To understand these facts, we develop a model in which firms compete for exclusive technology field rents protected by patents. Since the winner-takes-all nature of innovation implies that the leaders’ decisions to invest erode the value of the innovation options of the laggards, making them de facto more levered and riskier, our model predicts cross sectional differences between leaders’ and laggards’ factor loadings on common empirical proxies for systematic risk. We test these predictions using a comprehensive firm-level panel of information on patenting activity in all fields of technology and find that, in absolute value, a firm’s factor loading on market, technology, and value factor decreases with the firm’s share of patents. Our analysis suggests that the imperfect nature of competition in innovation is an important underpinning of the cross-section of returns.



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