We investigate how chief executive officers’ (CEOs) risk incentive (VEGA) affects firm innovation. To establish causality, we exploit compensation changes instigated by the FAS 123R accounting regulation in 2005 that mandated stock option expensing at fair values. Our identification tests indicate a positive and causal effect of CEOs’ VEGA on innovation activities. Furthermore, dampened managerial risk-taking incentive after the implementation of FAS 123R leads to a significant reduction in innovation related to firms’ core business and explorative inventions. It implies that managers diversify their innovation portfolios and decrease explorative inventions to curtail business risk when their risk-taking incentive is reduced.

Prior evidence indicates that proximity increases investments resulting in stronger economic growth. The introduction of a non-stop direct flight between two locations in different countries allows for faster travel and a lower cost of acquiring information, potentially facilitating acquisitions abroad. We examine this channel by considering cross-border mergers and acquisitions (M&A) activity between China and the U.S. Our results suggest that direct flights matter most in target selection. Direct flights are more important for M&A activity where information asymmetry is greater and for first time acquirers in the market. We demonstrate that endogeneity is unlikely to drive the results.

We exploit the staggered state-level enactment of the Uniform Trade Secret Act (UTSA) to examine the impact of intellectual property (IP) protection on product market dynamics. We find that UTSA-impacted firms shift their IP strategy to rely more on trade secrets and less on patents. Less IP disclosure increases information asymmetry and rival firms must adapt their competitive strategies as espionage and reverse engineering become more costly. Predation risk increases, and rivals engage in more intense price and non-price competition. Additionally, we find the probability of being acquired increases post-UTSA as rivals seek to acquire innovation, resulting in more concentrated product markets. Further, we find that the stock market generally views UTSA favorably.