Corporate Innovation and Returns

59 Pages Posted: 28 Oct 2019

See all articles by Jan Bena

Jan Bena

University of British Columbia - Sauder School of Business

Lorenzo Garlappi

University of British Columbia (UBC) - Sauder School of Business

Date Written: October 17, 2019

Abstract

Among U.S. public firms, technological innovation is concentrated in a small set of large players, with innovation “leaders” having considerably lower systematic risk than “laggards.” To understand this fact, we build a winner-takes-all patent-race model and show that a firm’s expected return decreases in its innovation output and increases in that of its rivals. Using a comprehensive firm-level panel of information on patenting activity by fields of technology in 1950-2010, we find strong support for the model’s predictions. Our results highlight that strategic interactions among firms competing in innovation are an important determinant of risk and expected returns.

Keywords: Competition in innovation, Patent races, Cross section of returns, Cost of capital

JEL Classification: G12, G14

Suggested Citation

Bena, Jan and Garlappi, Lorenzo, Corporate Innovation and Returns (October 17, 2019). Available at SSRN: https://ssrn.com/abstract=3471692 or http://dx.doi.org/10.2139/ssrn.3471692

Jan Bena (Contact Author)

University of British Columbia - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
+1 604 822 8490 (Phone)

HOME PAGE: http://www.janbena.com

Lorenzo Garlappi

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

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