This study investigates the impact of banking market deregulation on firm innovation, focusing on foreign bank entry. Exploiting the staggered deregulation of China’s banking sector to foreign banks following its accession to the World Trade Organization, we find a significant positive relationship between foreign bank entry and firm innovation. We further show that foreign bank entry could promote firm innovation directly by providing more and higher-quality banking services to customers, and indirectly by inducing domestic banks to extend more credit to firms with more soft information, enhancing their capacity to support innovative firms, and generating technology spillovers through an increased presence of foreign-invested firms

This paper examines the optimal incentive scheme in motivating people to innovate under ambiguity. When an innovation’s prospects are ambiguous, the use of extrinsic, high-powered incentives can lead the agent’s beliefs about the project’s outcome to deviate from that of the principal’s, which consequently deters innovation. The deterrent effect, however, is alleviated for firms in which agents have strong intrinsic incentives to adhere to firms’ goals and missions. In equilibrium, extrinsic and intrinsic incentives are complementary, and firms that face greater uncertainty invest more in fostering intrinsic incentives. Hence, firms that pursue more exploratory and radical innovation invest more in creating corporate identity and culture

This paper establishes an inequality that may be used to test the null hypothesis that a stock price equals the expected present discounted value of its dividend stream, with a constant discount rate.The inequality states that if this hypothesis is true, the variance of the innovation in the stock price is bounded above by a certain function of the variance in the innovation in the dividend.The bound is valid even if' prices and dividends are nonstationary.The inequality is used to test the null hypothesis, for some long term annual U.S. stock price data.The null is decisively rejected, with the stock price innovation variance exceeding its theoretical upper bound by a factor of as much as twenty.The rejection is highly significant statistically.Regression diagnostics and some informal analysis suggest that the results are more consistent with there being speculative bubbles in the U.S. stock market than with a failure of the rational expectations or constant discount rate hypothesis

Using a sample of Chinese firms from 2000 to 2018, we document that hometown firms (firms with hometown chairpersons) engage in less green innovation than non-hometown firms. Evidence suggests that local stakeholders offer hometown chairpersons more protection from environmental consequences than non-hometown chairpersons. We identify two possible mechanisms: government patronage and accommodation by local supply chain partners. Furthermore, we find that the double standards are alleviated with insignificant difference in corporate green innovation when non-hometown chairpersons marry hometown spouses or build local political relationships. Additional analyses suggest that (1) the double standards drive hometown firms to emit more pollutants than non-hometown firms, (2) when a firm is under government scrutiny for environmental issues, located in the city with severe air pollution, or in heavily polluting industries, the adverse effect of a chairperson's hometown on green innovation is minimal, and (3) our findings on green innovation also extend to a decrease in the number of pollutant treatment facilities and treatment capacity in a firm

The experimental method not only helps identify causal relationships, but also provides economists with a rich sense of context, focuses research on specific practical questions, stimulates collaboration with practitioners and specialists from other fields, and allows for rapid iteration. In this lecture, I present a series of examples illustrating how together these features make the experimental approach a powerful tool for advancing scientific understanding, informing policy, and promoting innovation. I then discuss how institutions can be designed to accelerate innovation and direct it toward the world’s most pressing needs

The Schumpeterian opportunity cost hypothesis predicts that firms concentrate innovative activities in recessions. However, empirical evidence suggests that innovative activities are procyclical. Theory proposes that firms shift R&D investments and innovation from recessions to booms to maximize returns by capturing high-demand periods before imitators compete away rents. This paper provides the first empirical test of these predictions. Results indicate that R&D spending is more procyclical in industries with faster obsolescence, where matching invention to demand is more valuable, and innovation is more procyclical in industries with weaker IP protection, where imitation poses a greater threat

We develop a methodology for testing Hicks's induced innovation hypothesis by estimating a product-characteristics model of energy-using consumer durables, augmenting the hypothesis to allow for the influence of government regulations. For the products we explored, the evidence suggests that (i) the rate of overall innovation was independent of energy prices and regulations; (ii) the direction of innovation was responsive to energy price changes for some products but not for others; (iii) energy price changes induced changes in the subset of technically feasible models that were offered for sale; (iv) this responsiveness increased substantially during the period after energy-efficiency product labeling was required; and (v) nonetheless, a sizable portion of efficiency improvements were autonomous

We examine the effects of accounting standards and regulatory enforcement on entrepreneurial innovation and social welfare. When the entrepreneur issues a financial report that violates the accounting standards, a regulatory agency may detect the violation and bring charges. We find that when regulatory penalties are relatively insensitive to the magnitude of the violation, optimal standards are sufficiently low that they induce full compliance, and increase as the intensity of enforcement increases. In contrast, when regulatory penalties are sensitive to the magnitude of the violation, optimal standards induce non-compliance and decline as the intensity of enforcement increases

A. The process of accumulating knowledge, 208. — B. Growth with non-stationary innovation possibility function, 213. — C. Conclusion, 218

We aim to tackle the longstanding debate on whether stock liquidity enhances or impedes firm innovation. This topic is of interest because innovation is crucial for firm‐ and national‐level competitiveness and stock liquidity can be altered by financial market regulations. Using a difference‐in‐differences approach that relies on the exogenous variation in liquidity generated by regulatory changes, we find that an increase in liquidity causes a reduction in future innovation. We identify two possible mechanisms through which liquidity impedes innovation: increased exposure to hostile takeovers and higher presence of institutional investors who do not actively gather information or monitor