Innovation matters for firm boundaries. Companies are more likely to integrate with peers with connected innovation. In this paper, I study how follow-on innovation determines the degree of integration between firms. I construct a measure of relative innovation proximity between firms, based on patent citations. I find companies are more likely to acquire peers with closer follow-on innovation, rather than build strategic alliances with them or license/buy their patents. Furthermore, the measure of relative innovation proximity between firms reflects firms' bargaining power and not the size of the synergies. In M&A transactions, a bidder with closer follow-on innovation pays a greater premium and exhibits lower announcement returns. On the other hand, in strategic alliance, a firm with closer follow-on innovation experiences greater announcement returns. These results are consistent with a hold-up model in which companies bargain over the type and terms of the contract.
Firms integrate more tightly with peers whose innovation closely follows companies' innovation. Firms are more likely to acquire and enter strategic alliance with peers with closer follow-on innovation, rather than license or infringe original innovation.
Does redacting information destroy firm value? Evidence from confidential treatment orders
Condential treatment (CT) of corporate information can exacerbate information asymmetry and agency problems but may also protect trade secrets; therefore whether it is valuable for shareholders is an empirical question. I address this question using novel, hand-collected data, studying the market reaction to CT requests. I document that companies with strong governance experience positive or no market reaction to redacted filings, whereas firms with weak governance obtain negative returns. I also examine whether and what types of information redaction might have negative effect on the market. Companies mostly redact information in collaboration, supply, license, and asset purchase agreements. Vis-a-vis fully disclosed lings, the market responds positively to redacted product-related information and negatively to redacted investor-sensitive information, such as settlement agreements. Taken together, this evidence is consistent with the various channels through which CT may affect firm value.
Lender competition and intangible collateral in syndicated loans
(joint with A. Manconi and E. Neretina)