Corporate Finance: Innovation and Adaptation
Paper Session
Friday, Jan. 5, 2024 2:30 PM - 4:30 PM (CST)
- Chair: Emmanuel Yimfor, Columbia University
Human Capital Reallocation and Agglomeration of Innovation: Evidence from Technological Breakthroughs
Abstract
This paper identifies the reallocation of human capital as a key channel of agglomeration spillovers for innovative firms. To measure agglomeration spillovers, I study how R&D labs in different local labor markets respond differently to scientific breakthroughs, which create large and unexpected shocks to innovation productivity in certain technology categories. Taking advantage of U.S. Census longitudinal establishment data matched with patent records, I systematically locate R&D labs in all local labor markets for each firm. I document four main findings. First, following scientific breakthroughs, affected labs in thicker local labor markets (i.e., commuting zones with more inventors innovating in a certain field) produce more patents and higher-quality patents, consistent with positive agglomeration spillovers. Second, the increase in patenting is mostly attributed to new hires rather than incumbent inventors. Third, the thick labor market effect is concentrated in states and industries where there is lower enforceability of non-compete agreements and labor is more mobile. Finally, using textual analysis to identify lab-level exposure to scientific breakthroughs, I find that inventors are reallocated to labs that are more favorably affected by shocks, which helps labs in thicker labor markets to more easily bring in inventors working in the same niche fields and having a diverse knowledge base. Taken together, these results point to labor mobility as a key force in explaining why innovative firms cluster, and suggest that the clustering of firms in thick labor markets can foster corporate innovation by facilitating productivity-enhancing reallocation of human capital following scientific breakthroughs.Steering Labor Mobility through Innovation
Abstract
This paper argues that firms proactively use innovation decisions to influence the mobility and human capital accumulation of their workers. We develop a dynamic model in which workers conduct R&D projects, accumulating both general and firm-specific human capital. Firms choose the scope of innovation, influencing the type of human capital workers accumulate during the process. Pursuing more general innovation leads to increased knowledge redeployability for the firm at the cost of more difficult employee retention. We estimate the model using granular innovation production and mobility data of three million inventors. Our model closely matches the observed mobility and innovation specificity over inventors' life cycles. Empirical estimates of the model parameters imply that 24% of observed innovation specificity among U.S. firms is driven by their labor market considerations, which enhances the firm value but lowers the inventors' surplus.Excess Commitment in R&D
Abstract
High levels of commitment to R&D activities can facilitate breakthrough innovations, but can also turn into excess commitment to previously chosen actions. Using project-level R&D data on clinical trials by pharmaceutical firms, westudy how unanticipated variation in firms’ commitment to trials affects subsequent firm decision-making and R&D outcomes. Unexpected trial completion
delays, as well as unexpected trial cost increases due to exchange rate fluctuations,
significantly increase the likelihood that firms advance trials to the next trial phase.
Consumers may, in fact, in some ways benefit from firm-induced distortions in new
drug development. Marginally-launched drugs because of commitment distortions
are associated with insignificantly more adverse events, but are significantly more
likely to target diseases for which there are no or only few existing medications in the marketplace (orphan drugs).
Discussant(s)
Isaac Hacamo
,
Indiana University
Sabrina Howell
,
New York University
Xuelin Li
,
Columbia University
Alice Bonaime
,
University of Arizona
JEL Classifications
- G3 - Corporate Finance and Governance