Job Market Paper
Catering Innovation: Entrepreneurship and the Acquisition Market
(Job Market Paper)
The growth of the real economy depends on innovation in the startup market. Since the financial market of acquisitions is increasingly the dominant exit path for entrepreneurs, inventors may position their choice to begin a new venture and cater their innovation to potential acquirers. I evaluate the impact of the acquirer market structure on entrepreneurship and innovation with a formal proxy variable method and the Heckman selection model to address causality. Using a novel dataset of early stage startups matched to patents of all inventors, I demonstrate that a one standard deviation increase in both acquirer market concentration and size significantly decreases the inventor's propensity to become an entrepreneur by over 4%, consistent with fragmented markets being appealing entry markets. My main finding is that a one standard deviation increase in acquirer concentration and size increases citations per patent by 18% and 7% respectively. Furthermore, a one standard deviation increase in acquirer market concentration and market size increases catering by 12% and 5%, as measured by a startup's technological overlap with its potential acquirers. The results suggest that synergies exist in technological overlap and that large potential acquirers in concentrated industries can best capture and scale said benefits.
Work In Progress
Market Power in Merger Announcement Returns
(Joint with Ben Handel, Lucy Hu, and Ulrike Malmendier)
We provide evidence that a significant portion of the returns to merger announcements are explained by changes in market power resulting from the merger. Using a large sample of completed mergers from 1980 to 2012, we compute the expected and actual change in concentration for each merger. We find that a 0.1 expected increase in concentration measured using the Herfindahl index leads to a 2.3% increase in cumulative abnormal returns over a three day period. Actual increase in concentration, on the other hand, does not have any effect on abnormal returns. In the long-run, the results are reversed. Expected changes in concentration does not predict long-run returns whereas actual changes in concentration positively predict long-run returns. We attribute the results to investors not fully internalizing the impact of market power in mergers.
Keeping Score: The Economic Valuation of Early Stage Startups
(Joint with Adair Morse)
Using a novel dataset of startups and investments from Crunchbase, we study the economic factors that underlay the common "scorecard" method used by venture capitalists and angel investors to evaluate startup success. We then examine how predictive the scorecard is in determining startup success in terms of follow-on investments and exit. |
