We show how uncertainty shapes corporate asset allocation, composition, and productivity using data from the shipping industry. Firms curtail both ship acquisitions and disposals when uncertainty ...increases, primarily through cuts in new ship orders and ship demolitions — decisions that are costlier to reverse vis-à-vis secondary market transactions. Uncertainty also prompts firms to concentrate their fleets into narrower, less productive portfolios. We corroborate our findings using the 2009–2011 spike in Somali pirate attacks as an uncertainty shock to shipping activity. Uncertainty hampers “creative destruction,” slowing both the adoption of innovation embodied in new capital and the disposal of old capital.
We study a novel database of intellectual property (IP) licensing agreements sourced from filings made by publicly listed corporations, a large fraction of which firms (initially) disclose with ...redacted terms. In contrast to the benchmark that IP quality alone determines the pricing of IP, we argue that bargaining power between licensing counterparties plays a critical role in explaining several patterns in observed royalty rates. Licensors with differentiated technology and high market power charge higher royalty rates, while larger‐than‐rival licensees pay lower royalty rates. Licensors command premium royalty rates for contract exclusivity, especially in competitive markets. Finally, we employ this framework and setting to understand the pricing implications of nondisclosure: licensors redact payment terms when they transact at lower royalty rates, consistent with preserving bargaining power for future negotiations. Our findings offer a new explanation for innovator secrecy and have several practical takeaways for transfer pricing and patent litigation.
Abstract
Big data on job postings reveal multiple facets of the impact of COVID-19 on corporate hiring. Firms disproportionately cut new hiring for high-skill positions, with financially constrained ...firms reducing skilled hiring the most. Applying machine learning methods to job-ad texts, we find that firms have skewed their hiring toward operationally-core functions. New positions display greater flexibility regarding schedules and tasks. While job posting levels show signs of recovery starting in late-2020, changes to job descriptions and skill profiles persist through early-2022. Financial constraints amplify these changes, with constrained firms’ new hires witnessing greater adjustments to job roles and employment arrangements.
Abstract
We show that the 2016 Brexit Referendum had multifaceted consequences for corporate America, shaping employment, investment, divestitures, R&D, and savings. The unexpected vote outcome led ...U.S. firms to cut jobs and investment
within
U.S. borders. Using establishment-level data, we document that these effects were modulated by the reversibility of capital and labor. American-based job destruction was particularly pronounced in industries with less skilled and more unionized workers. U.K.-exposed firms with less redeployable capital and high input-offshoring dependence cut investment the most. Data on the near universe of U.S. establishments also point to measurable, negative effects on establishment turnover (openings and closings). Our results demonstrate how foreign-born political uncertainty is transmitted across international borders, shaping domestic capital formation and labor allocation.
Ample literature builds on the notion that real estate values boost corporate secured borrowing (“collateral channel”). A comprehensive contract-level database allows us to observe the value, ...location, and end-use of firms’ real estate holdings in the US and all debts raised against those assets over the 2000–2017 period. Firms raise new debt following an increase in the value of their real estate but use unsecured rather than secured borrowing. We rationalize these findings with a model where firms’ choices between secured and unsecured debt reflect the systematic risk exposures of the assets on their balance sheets. While secured debt may be seen as a safer claim than unsecured debt contractually, we demonstrate that it can be riskier from an economic perspective. Our analysis adds new insight into how firms set their debt structure.
In this dissertation, I explore how economic agents conduct their investment decisions under uncertainty. Each of the three chapters empirically tests predictions from real-options frameworks of ...investment under uncertainty, shedding light on novel dimensions of agents' investment responses to uncertainty. In the first chapter, I study how the startup ecosystem responds to uncertainty. In the second chapter, I empirically measure the international transmission of uncertainty by examining US firms' investment responses to uncertainty induced by the 2016 Brexit Referendum. In the third chapter, I examine how uncertainty affects not only the level, but also the composition, of firms' capital stock using data on global shipping firms' investment and disinvestment decisions. Chapter 1 shows that economic uncertainty boosts dynamism among US startups. I introduce news- and survey-based measures of startup-relevant uncertainty and find that uncertainty is associated with net firm creation, and net job creation among young firms. I identify the channel by demonstrating, in a real-options framework, that venture capitalists (VCs) adjust their portfolios to take advantage of uncertainty. In contrast to mature firms delaying investment when facing uncertainty, VCs increase their investment spending during periods of heightened uncertainty, but do so by funding a large number of startups at low valuations. Critically, these dynamics play out solely at the earliest funding stages, implying greater experimentation by VCs. Buoyed by increased VC funding, startups accelerate their investment in technology and labor, producing more innovation and gaining greater traction. Looking at eventual outcomes, I provide evidence that startups receiving funding during high uncertainty periods are more likely to either fail or have exits with high multiples. My results point to uncertainty playing an important role in spurring "creative destruction" by stimulating risky startup activity in the economy. Chapter 2 (joint with Murillo Campello, Gustavo S. Cortes, and Fabricio D'Almeida) shows that the 2016 Brexit Referendum led American corporations to cut jobs and investment within US borders. Using establishment-level data, we document that these effects were modulated by the degree of reversibility of capital and labor. American job losses were particularly pronounced in industries with less skilled and more unionized workers. UK-exposed firms with less redeployable capital and high input-offshoring dependence cut investment the most. Data on the near-universe of US establishments also point to measurable, negative effects on establishment turnover (openings and closings). Our results demonstrate how foreign-born political uncertainty is transmitted across international borders, shaping domestic capital formation and labor allocation. Chapter 3 (joint with Murillo Campello and Hyunseob Kim) studies how economic uncertainty affects corporate asset composition and productivity using near-universe data on shipping firms' new orders, secondary-market transactions, and demolition of ships. Using a real-options framework, we show that shipping firms curtail both the acquisition and disposal of ships in response to heightened uncertainty. Critically, this mechanism operates primarily through cuts in new ship orders and demolition of older vessels --- decisions that are harder to reverse vis-a-vis deals in the used ship market. We use the escalation in Somali pirate attacks from 2009--2011 as a plausibly exogenous shock to uncertainty and find consistent results. The dynamics we identify are more pronounced when secondary ship markets are less liquid, as firms face stronger incentives to delay their decisions. Our results are novel in showing that uncertainty hampers "creative destruction" among mature firms in which these firms adopt technological innovation embodied in newer capital and dispose of old-vintage capital.
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