More Cash, Less Innovation: The Effect of the American Jobs Creation Act on Patent Value
Journal
Journal of Financial and Quantitative Analysis
Journal Volume
56
Journal Issue
1
Pages
1
Date Issued
2021
Author(s)
Abstract
Firms can become less innovative following a sudden cash inflow. Specifically, multinational firms that were eligible to repatriate (and indeed repatriated) cash to the United States under the American Jobs Creation Act (AJCA) generate less valuable patents than otherwise similar firms. They also explore more. This effect only exists among firms in less competitive industries, firms with lower institutional ownership (IO), and firms with overconfident chief executive officers (CEOs); this effect 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, which can destroy value.
Subjects
RESEARCH-AND-DEVELOPMENT; FINANCING CONSTRAINTS; RESEARCH PRODUCTIVITY; DIVERSIFICATION; DEREGULATION; INCENTIVES; INVESTMENT; MATTER; RISK
Publisher
CAMBRIDGE UNIV PRESS
Type
journal article