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Doctoral Student Supervision (Jan 2008 - Nov 2020)
This thesis contains three research papers related to innovation. Chapter 1 examines the effect of research and development (R&D) on bankruptcy. I propose that R&D investment creates uncertainty, leading to a higher volatility of firm value and greater information asymmetry between insiders (especially senior executives) and outsiders (such as investors). Both higher firm-value volatility and higher information asymmetry can increase the risk of bankruptcy for firms. Using a large panel of United States (US) companies from 1979-2009, I find that consistent with my prediction, firms engaging in high levels of R&D are more likely to go bankrupt. Further, I explore the mechanism by which R&D influences corporate bankruptcy. Empirical evidence supports both of the firm-value volatility and asymmetric information channels. Chapter 2 studies the influence of the business cycle on the interactions between R&D and bankruptcy. I find that the effect of R&D on bankruptcy increased during economic downturns. With stringent financial constraints during downturns, R&D intensive firms are more likely to be affected than during economic expansions. I further find that firms are reluctant to decrease their R&D spending during recessionary periods and that firms taking a more aggressive posture in increasing R&D during downturns enjoy stronger sustained operating performance. Overall, results show that R&D is more risky in recessions than in booms. Chapter 3 examines mergers and acquisition (M&A) transactions between firms with patent citation links and shows such transactions generate better merger performance than acquisitions of firms without citation links. Specifically, I find that acquirers’ announcement returns are positively related to citation links between the acquirer and target firms. I suggest that citation links might mitigate two possible concerns that investors could have: (1) the acquirer might overbid for the target firm due to the “winner’s curse” problem, or (2) there would be failure at the post-merger integration process. My results are consistent with the hypothesis that citations links are related to high quality transactions, but I do not find evidence supporting the hypothesis that citations help acquirers avoid overpaying for target firms.