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R&D, Patents, and Innovation

Paper Session

Saturday, Jan. 4, 2020 10:15 AM - 12:15 PM (PDT)

Manchester Grand Hyatt, Seaport H
Hosted By: American Finance Association
  • Chair: Shai Bernstein, Stanford University

Benchmarking U.S. University Patent Value and Commercialization Efforts: A New Approach

David Hsu
University of Pennsylvania
Po-Hsuan Hsu
National Tsing Hua University
Tong Zhou
Sun Yat-Sen University
Arvids Ziedonis
Boston University


Despite the significance of patented university research, it is difficult to measure the economic value of their patented inventions and observe the extent to which universities are able to capture such value through patent licensing. Moving beyond assessing commercialization performance by simple statistics, we propose a new approach to benchmarking university patents and commercialization performance based on comparative corporate patent value. Our procedure involves matching university patents to patents granted to public corporations with similar patent characteristics to estimate the “potential value” of these university patents by the stock market reactions to matched corporate patent grants. We then calibrate an empirical patent valuation model for these estimated values of university patents by employing technology-level licensing data from a leading US research university. In aggregate, we compare the estimated potential values of a university’s patent portfolio to its annual licensing income, and find that universities realize on average 5-9% of the estimated potential value through licensing income. Finally, we investigate the correlates of university-level potential patent value and suggest avenues for future research.

Shielding Firm Value: Employment Protection and Process Innovation

Jan Bena
University of British Columbia
Hernan Ortiz-Molina
University of British Columbia
Elena Simintzi
University of North Carolina-Chapel Hill


An increase in labor dismissal costs leads firms to increase process innovation, namely innovation that reduces production costs, especially in industries with a large share of labor costs in total costs. Firms with high innovation ability adjust their production methods and mitigate the effects of increased labor rigidity. They exhibit larger increases in process innovation and capital intensity, and larger decreases in employment and employment growth. This allows them to increase labor productivity, operating performance, and ultimately to avoid value losses. Our evidence highlights that, by facilitating the adjustment of the input mix when market conditions change, innovation ability is a key driver of firm performance.

United States Innovation and Chinese Competition for Innovation Production

Gerard Hoberg
University of Southern California
Bruce Li
Cornerstone Research
Gordon Phillips
Dartmouth College


We examine how competitive shocks from China impact U.S. innovation through two margins: the markets for innovation and for existing products. Using Chinese data, we map each industry to province Internet penetration levels using geographic agglomeration data. The resulting industry-year database indicates the ability of Chinese firms to acquire knowledge globally and compete in the market for intellectual property production. Increases in provincial Chinese Internet penetration are followed by sharp reductions in R&D investment and subsequent patents for U.S. firms, and increased patenting by Chinese firms. The new Chinese patents also cite the patents of treated U.S. firms at a high rate, consistent with increased intellectual property competition. In contrast, U.S. firms with fewer growth options and more tangible assets tend to increase R&D and patenting activity. Overall, both competition in intellectual property by Chinese firms and the asset competition of U.S. firms influence U.S. firm innovation.

Financing Entrepreneurship through the Tax Code: Angel Investor Tax Credits

Sabrina T. Howell
New York University
Filippo Mezzanotti
Northwestern University


Many jurisdictions seek policy tools to stimulate high-growth entrepreneurship.
Angel investor tax credits, which subsidize startup investment by wealthy individuals
(i.e. “angels”), are an attractive option because they allow the market to “pick
winners” and have relatively low administrative burdens. This paper studies these
programs using state-level event studies and a within-program comparison of tax
credit beneficiary firms with their rejected counterparts. We find no evidence that
angel tax credits have significant effects on local entrepreneurial activity. The
programs may have a limited effect in part because a large share of investor-company
pairs benefiting from the tax credits do not suffer from the severe information
asymmetry that is believed to cause financial constraints among early stage, risky,
and potentially high-growth startups. Indeed, just 9.5 percent of beneficiary
companies did not previously raise external equity, have no executive receiving an
investor tax credit, and have activities related to the IT/Web/Computer sector.
Danielle Li
Massachusetts Institute of Technology
Gustavo Manso
University of California-Berkeley
Adrien Matray
Princeton University
Daniel Paravisini
London School of Economics
JEL Classifications
  • G3 - Corporate Finance and Governance