Research

Forthcoming at Review of Finance

Abstract: I document that the network structure of the online economy significantly contributes to rising industry concentration.  Firms that are central in the online economy benefit more from increased economies of scale, decreased search costs, and network effects resulting from digitalization.  Industries with firms that are more central become more concentrated and central firms have larger increases in market share.  These results are driven by firms’ ability to generate revenue, as evidenced by central firms earning higher risk-adjusted returns and having more positive earnings surprises.  Centrality is also associated with increasing productivity, but profitability only increases for central firms in business-to-consumer industries.

Forthcoming at Journal of Financial and Quantitative Analysis

Abstract: We develop an extensive mapping of the revolving door phenomenon by examining the work experience of 420,153 individuals in top corporate positions at 12,869 firms. More than half of these firms have at least one such individual with prior experience in one of 187 executive branch agencies. We find that firms are more likely to receive procurement contracts following the appointment of a former regulator transitioning within two years of leaving the agency. This result is consistent with the “knowledge” hypothesis. Furthermore, less-complex contracts signed following the appointment of former regulators are more likely to be renegotiated, resulting in higher costs for the government.

Media Coverage: ProMarket

Abstract: The legal boundaries of patents are more uncertain than commonly assumed. This uncertainty can increase costs from holdup, licensing, and litigation, which decreases the estimated value of synergies arising from the acquisition of innovation. We find that this uncertainty is important for target selection. Firms are less likely to be acquired when their patents are in thickets that expose firms to more patent-right uncertainty. Conversely, firms are more likely to be acquired when their patents form thickets that shield firms from this uncertainty. Furthermore, these relations depend critically on the acquirer's or target's ability to impose costs on the other.

Media Coverage: Columbia Law School Blue Sky Blog

Abstract: We investigate how stock market concentration impacts the difference in returns between small and large firms (i.e., the size premium).  Concentration may increase expected returns for large firms due to the inability to diversify their idiosyncratic risk (i.e., granularity), but it also may increase expected returns for small firms due to capital misallocation.  We find that concentration increases the size premium by 13.33 percentage points per annum, indicating the capital allocation effect dominates. A variety of tests provide further evidence of this capital allocation effect. Nonetheless, we also find evidence that the size premium weakens following idiosyncratic increases in granularity.

Media Coverage: WSJ Heard on the Street, Morningstar, Seeking Alpha, Quantpedia 

Abstract: We investigate open-source innovation by public firms and the private value it generates for these firms. Unlike patents, which grant inventors exclusive rights to their inventions, open-source innovations can be used by anyone. Nevertheless, using an extensive dataset of public-firm activity on GitHub, we find that firms with open-source projects represent 68% of the U.S. stock market across 86% of industries. We estimate the private value of all projects in our sample to be nearly $25 billion, with the average project generating $842,000. We find that projects with fully permissive licenses are generally less valuable and firms facing higher competition tend to generate less private value from their projects. We also find that complementarity with commercial products is not a primary driver of private value. Finally, open-source value significantly predicts firm growth in terms of sales, profits, employment, and patenting. These results contribute to our understanding of the private value generated by innovation in the absence of excludability.

Abstract: Using investor internet access, we show that increased information access leads to decreased geographic bias in retail investor portfolios, although this ultimately harms the portfolio performance. With internet access improving information access, investors must choose whether to focus their attention on local or distant stocks, subsequently increasing or decreasing their geographic bias, respectively. We find that investors are more likely to invest in more distant stocks after starting to trade online. This is especially true for investors from rural areas and the southern region of the U.S. However, online investors are less likely to invest in new industries, increase their trend-chasing behavior, and appear to lose their advantage in local holdings, resulting in decreased Sharpe ratios despite the diversification benefits. The evidence is most consistent with distant stocks grabbing the attention of online investors and distracting them from their competitive advantage. Our findings demonstrate that while information access provides benefits for investors, it can also exacerbate behavioral biases, which places additional responsibility on investors to carefully manage how they use their access.