Working Papers
Financing Innovation: A Hurdle-Rate Theory of Inventive Procyclicality
Published:
Rej&R at Research Policy (with D. Audretsch, W. Drobetz, E.E. Ernst, S. Vismara)
→ Coverage: R&D Today
Abstract: Schumpeterian arguments of “creative destruction” predict that innovation is countercyclical. However, empirical findings demonstrate the contrary. We apply corporate finance principles to macro- and innovation economics and propose a “hurdle-rate theory of inventive procyclicality”. High-ERP periods stifle innovation because many R&D projects do not pass corporate budgeting decisions when discount rates are high. Consistent evidence suggests that the hurdle-rate effect is less pronounced in firms with financial slack, institutional ownership with long-term orientation, and weak product-market competition. In an attempt to reconcile the procyclical evidence with Schumpeter’s countercyclical theory, we show that firms engaging in exploratory search suffer less during high-ERP episodes than those focusing on exploitative search, and patents developed during high-ERP periods have a higher technological impact and receive significantly more forward citations. Finally, we exploit the staggered variation in state-level R&D tax credits in difference-in-differences analyses to establish a causal link between the ERP and patent value.
Financing Decentralized Digital Platform Growth: The Role of Crypto Funds in Blockchain-based Startups
Published:
R&R at Journal of Business Venturing (with D. Cumming, N. Dombrowski, W. Drobetz)
→ Coverage: Duke Law School FinReg Blog, Columbia Law School BlueSky Blog
Abstract: Coordination frictions may prevent the efficient adoption and governance of digital platforms. We document that crypto funds (CFs) create value, inter alia, by smoothing such frictions on blockchain-based decentralized digital platforms (DDPs). CF-backed DDPs obtain higher valuations in the primary market (i.e., in initial coin offerings, ICOs), outperform their peers post ICO, and benefit from token price appreciation around CF investment disclosure in the secondary market. In line with our theory, primary transaction data from the Ethereum ledger shows that the valuations of DDPs with meager adoption and relative centralization benefit more from CF backing. Moreover, the positive valuation and performance effects for CF-backed DDPs are higher for CFs with more central investor networks.
The Economic Costs of the Russia-Ukraine War: A Synthetic Control Study of (Lost) Entrepreneurship
Published:
R&R at Strategic Entrepreneurship Journal (with D. Audretsch, H. Motuzenko, S. Vismara)
→ Coverage: R&D Today, LSE Business Review, Vox Ukraine
Abstract: This synthetic control study quantifies the economic costs of the Russo-Ukrainian war in terms of foregone entrepreneurial activity in both countries since the invasion of Crimea in 2014. Relative to its synthetic counterfactual, Ukraine’s number of self-employed dropped by 675,000, corresponding to a relative loss of 20%. The number of Ukrainian SMEs temporarily dropped by 71,000 (14%) and recovered within five years of the conflict. In contrast, Russia had lost more than 1.4 million SMEs (42%) five years into the conflict. The disappearance of Russian SMEs is driven by both fewer new businesses created and more existing business closures.
Academic Freedom and Innovation
Published:
R&R at PLOS ONE (with D. Audretsch, C. Fisch, C. Franzoni, S. Vismara)
→ Coverage: LSE Impact Blog, Academe Blog, Research Europe, ProMarket, Univeristy of Chicago
Abstract: The first-ever article published in Research Policy was Casimir’s (1971) advocacy of academic freedom in the light of the industry’s increasing influence on research in universities. Half a centure later, the literature attests to the dearth of work on the role of academic freedom for innovation. To fill this gap, we employ instrumental variable techniques to identify the impact of academic freedom on the quantity (patent applications) and quality (patent citations) of innovation output at the country level. The empirical evidence suggests that improving academic freedom by one standard deviation increases patent applications and forward citations by at least 37% and 29%, respectively. The results hold in a representative sample of 157 countries over the 1900-2015 period, with a sample/population coverage ratio of 92%. This research note also is an alarming plea to policymakers: Global academic freedom has declined over the past decade for the first time over the last century. Our estimates suggest that the decline of academic freedom has resulted in a global loss quantifiable with at least 4.0% fewer patents filed and 5.9% fewer patent citations.
Cybercrime on the Ethereum Blockchain
Published:
R&R at Journal of Banking & Finance (with L. Hornuf, R. Nam, Y. Yuan)
→ Coverage: Decrypt, CoinTribune, Duke Law School
→ Best Paper Award: PDW for Financial Market Misconduct SI in the Journal of Banking and Finance
Abstract: We propose a taxonomy of cybercrime on the Ethereum blockchain and examine how cybercrime impacts victims’ risk-taking and returns. Our difference-in-differences analysis of a sample of victims and matched non-victims suggests that victims increase their long-term total risk-taking and earn lower risk-adjusted returns in the post-cybercrime period. Victims’ long-term total risk-taking increases because they increase diversifiable risk in the long term. The increased diversifiable risk correlates with victims’ withdrawal from altcoins after cybercrime. At the same time, the reduction in risk-adjusted returns correlates with increased trading activity and churn, due plausibly to managing cybercrime exposure. In the cross-section of Ethereum addresses, we show that the most-affluent victims take a systematic approach to restore their pre-cybercrime wealth level, while the least-affluent victims turn into gamblers. Finally, a parsimonious forensic model explains a good part of the addresses’ probability of being involved in cybercrime, both on the victim and the cybercriminal side.
Emotions in New Venture Teams: Affects as Signals, Emotional Diversity, and Valuation Effects in Initial Coin Offerings (ICOs)
Published:
Rej&R at Strategic Entrepreneurship Journal
Abstract: New Venture Teams’ (NVTs’) collective emotions impact startup valuations through their intensity and diversity. I identify NVTs’ affective traits with artificial emotional intelligence by tracking 2,520 individuals across 165 NVTs during their Initial Coin Offerings (ICOs). The level of NVTs’ negative affects correlates with lower valuations, while within-NVT emotional diversity has a value-increasing effect. Intuitively, negative affects are associated with traits that may be prejudicial in dynamic entrepreneurial markets, but could be valuable if balanced by opposite traits in emotionally diverse NVTs. Moderated mediation analyses suggest that NVT affects have pronounced direct valuation effects. Overall, I extend the focus of the affective entrepreneurship literature from the entrepreneur to the team level, introduce the concept of emotional diversity, and explore the role of emotions in entrepreneurial finance.
The Discount for Lack of Marketability in Private Investments in Public Equity
Published:
Work in progress (with A. Bernardo, I. Welch)
Abstract: Our paper estimates that shares in Private Investments in Public Equity (PIPEs) offered a discount of 3-4% for each year during which these shares could not be resold. Our estimates make use of the duration of the resale restriction and information about the effects of a regulatory change. In 2008, the SEC amended Rule~144 to shorten the default statutory holding period. Our estimates are smaller than previous estimates and robust to various controls and endogeneity concerns. The discount can be twice as large in offerings in which marketability is a greater concern.