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  5. Innovation Frontiers in Finance
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Innovation Frontiers in Finance

Paper Session

Sunday, Jan. 9, 2022 3:45 PM - 5:45 PM (EST)

Hosted By: American Finance Association
  • Chair: Lauren Cohen, Harvard University

Does Trading Spur Specialization? Evidence from Patenting

Pengfei Han
,
Peking University
Chunrui Liu
,
Tsinghua University
Xuan Tian
,
Tsinghua University

Abstract

Exploiting staggered establishments of patent exchanges in China, we examine how patent trading affects firm innovation and specialization. We find that patent trading and in-house innovation are complements for patent sellers, whereas they are substitutes for the buyers. Our findings demonstrate that the market for technology induces (i) specialization between patent buyers and sellers, (ii) specialization between patent licensors and licensees, and (iii) specialization based on a firm’s R&D efficiency. All these three patterns of specialization indicate that a firm’s response to an emerging market for technology hinges on its comparative advantages. Firms with a comparative advantage in creating innovation redirect their resources from advertising to patenting activities, whereas firms with a comparative advantage in commercializing innovation switch their effort from patenting to advertising activities. Moreover, enhanced patent trading contributes to improved firm performance and increasing market concentration. Our findings suggest patent trading promotes comparative-advantage-based specialization and enhances firm performance.

Blaze New Trails for Others to Follow: Evidence from Scanner Data

Kuntara Pukthuanthong
,
University of Missouri
Ruixiang Wang
,
Northeastern University

Abstract

Tracking more than 100 billion weekly transactions of two million products at the barcode level from 2007 to 2017, I identify and categorize new products as pioneers, followers and improvers to study corporate exploratory and/or exploitative innovation strategies. Firms introducing “pioneer” products are associated with greater future profitability and stock returns than those introducing “improver” and “follower” products. Using the price elasticity of demand can explain pioneering (exploratory) innovation’s operating success. Meanwhile, limited investor attention accounts for pioneering firms’ superior stock performance. I exploit two exogenous shocks to firms’ new product development decisions to address endogeneity concerns.

Technological Obsolescence

Song Ma
,
Yale University

Abstract

This paper proposes a new measure of technological obsolescence using detailed patent data. Using this measure, we present two sets of results. First, firms' technological obsolescence foreshadows substantially lower growth, productivity, and reallocation of capital. This finding applies mainly for obsolescence of core innovation and embodied innovation, and it is stronger in competitive product markets. Second, in stock markets, high-obsolescence firms under-perform low-obsolescence firms by 7 percent annually. Using analyst forecast data, we show this is due to a systematic overestimation of future profits of obsolescent firms. The measure contains incremental information about firm innovation relative to measures focusing on new innovation.

Technology Transfer and Early Industrial Development: Evidence from the Sino-Soviet Alliance

Michela Giorcelli
,
University of California-Los Angeles
Bo Li
,
Tsinghua University

Abstract

This paper studies the short- and long-run effects of international technology transfer on early industrial development, using evidence from the Sino-Soviet Alliance. Between 1950 and 1957, the Soviet Union supported the so-called “156 technology transfer projects” in China, which involved constructing large, capital-intensive plants in heavy industries, transferring state-of-the-art Soviet machinery and equipment, and diffusing technical assistance and know-how from Soviet engineers to their Chinese counterparts. We hand-collected archival data on the 156 projects, which we complemented with plant-, firm-, and provincial level information from 1949 to 2013. To estimate the causal effect of the program, we exploit that, due to unanticipated political tensions between the two countries, some projects were built as planned with Soviet machinery and technical assistance (treated projects) while others were eventually realized by China alone, without any Soviet technology or assistance (comparison projects). We find that (1) plants in treated projects performed better than plants in comparison projects in both the short run and the long run; (2) Soviet technical assistance diffused industry-specific knowledge through the training of Chinese engineers, which further increased plant outcomes; (3) the program generated local horizontal and vertical spillovers; (4) production in treated project counties was substantially reallocated from state-owned to privately owned companies after the waves of privatization started in 2005.

Discussant(s)
Bo Bian
,
University of British Columbia
Xinxin Wang
,
University of California-Los Angeles
Shai Bernstein
,
Harvard University
Ting Xu
,
University of Virginia
JEL Classifications
  • G0 - General