More Cash, Less Innovation: The Effect of the American Jobs Creation Act on Patent Value

54 Pages Posted: 18 Apr 2017 Last revised: 5 Jan 2021

See all articles by Heitor Almeida

Heitor Almeida

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance

Dongmei Li

University of South Carolina - Darla Moore School of Business - Department of Finance

Kevin Tseng

National Taiwan University - Department of Finance; National Taiwan University - Center for Research in Econometric Theory and Applications

Date Written: May 2019

Abstract

Firms can become less innovative following a sudden “inflow” of cash. Specifically, multinational firms that were eligible to repatriate (and indeed repatriated) cash to the U.S. under the American Jobs Creation Act generate less valuable patents than otherwise similar firms. They also conduct more exploratory activities. This effect only exists among firms in less competitive industries, firms with lower institutional ownership, and firms with overconfident CEOs, and is mainly driven by the reduction in the value of U.S.-originated patents. Our evidence suggests that, without appropriate governance, a cash windfall may lead managers to engage in riskier innovation strategy that can destroy value.

Keywords: Financial Slack, Innovation Strategy, Agency Problem

JEL Classification: G32; G34; O32

Suggested Citation

Almeida, Heitor and Hsu, Po-Hsuan and Li, Dongmei and Tseng, Kevin, More Cash, Less Innovation: The Effect of the American Jobs Creation Act on Patent Value (May 2019). Available at SSRN: https://ssrn.com/abstract=2953496 or http://dx.doi.org/10.2139/ssrn.2953496

Heitor Almeida (Contact Author)

University of Illinois at Urbana-Champaign ( email )

515 East Gregory Drive
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Champaign, IL 61820
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HOME PAGE: http://www.business.illinois.edu/FacultyProfile/faculty_profile.aspx?ID=11357

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

Dongmei Li

University of South Carolina - Darla Moore School of Business - Department of Finance ( email )

1014 Greene Street
Columbia, SC 29208
United States

Kevin Tseng

National Taiwan University - Department of Finance ( email )

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Taipei, 106
Taiwan

National Taiwan University - Center for Research in Econometric Theory and Applications ( email )

1 Sec. 4, Roosevelt Road
Taipei 106, 106
Taiwan

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