We first document that, despite potential legal issues, overlapping directors are surprisingly prevalent among direct competitors. Using panel data regressions and plausibly exogenous shocks, we find that competing firms in markets with dense overlapping-director networks experience innovation herding, lose product differentiation, and, ultimately, perform poorly. Novel text-based network propagation tests of technologies show that intellectual property leakage plays a role as firms with dense overlapping director networks experience faster propagation of technologies to competitors. Our findings suggest a coordination problem where industry participants cannot stop rivals from earning small gains from leakage despite much larger industry-wide negative externalities.

We test the hypothesis that low-visibility shocks to text-based network industry peers can explain industry momentum. We consider industry peer firms identified through 10-K product text and focus on economic peer links that do not share common Standard Industrial Classification (SIC) codes. Shocks to less visible peers generate economically large momentum profits and are stronger than own-firm momentum variables. More visible traditional SIC-based peers generate only small, short-lived momentum profits. Our findings are consistent with momentum profits arising partially from inattention to economic links of less visible industry peers.

Using word content analysis on the time-series of IPO prospectuses, we show that issuers tradeoff underpricing and strategic disclosure as potential hedges against litigation risk. This tradeoff explains a significant fraction of the variation in prospectus revision patterns, IPO underpricing, the partial adjustment phenomenon, and litigation outcomes. We find that strong disclosure is an effective hedge against all types of lawsuits. Underpricing, however, is an effective hedge only against Section 11 lawsuits, those lawsuits which are most damaging to the underwriter. Underwriters who fail to adequately hedge litigation risk experience economically large penalties, including loss of market share.

Using word content analysis, we decompose information in the initial public offering prospectus into its standard and informative components. Greater informative content, as a proxy for premarket due diligence, results in more accurate offer prices and less underpricing, because it decreases the issuing firm's reliance on bookbuilding to price the issue. The opposite is true for standard content. Greater content from high reputation underwriters and issuing firm managers, through Management's Discussion and Analysis, contribute to the informativeness of the prospectus. Our results suggest that premarket due diligence and disclosure by underwriters and issuers can serve as a substitute for costly bookbuilding. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.

We examine how product market competition affects firm cash flows and stock returns in industry booms and busts. Our results show how real and financial factors interact in industry business cycles. In competitive industries, we find that high industry‐level stock market valuation, investment, and financing are followed by sharply lower operating cash flows and abnormal stock returns. Analyst estimates are positively biased and returns comove more. In concentrated industries these relations are weak and generally insignificant. Our results are consistent with participants in competitive industries not fully internalizing the negative externality of industry competition on cash flows and stock returns.

We provide evidence using firm 10‐Ks that over the past 30 years, U.S. firms have expanded their scope of operations. Increases in scope were achieved largely without increasing traditional operating segments. Scope expansion significantly increases valuation and is realized primarily through acquisitions and investment in R&D, but not through capital expenditures. Traditional concentration ratios do not capture this expansion of scope. Our findings point to a new type of firm that increases scope through related expansion, which is highly valued by the market.

We examine the impact of lost intellectual property protection on innovation, competition, firm performance, and valuation. We consider firms whose ability to protect intellectual property (IP) using patents is weakened following a major Supreme Court decision. We use large language models (LLM) to identify firms’ patent portfolios’ exposure to this decision and find an unequal impact. Large firms gain and small firms lose. Large impacted firms benefit as their sales growth increases and their exposure to lawsuits decreases. Small impacted firms lose as they face increased competition, product-market encroachment, and lower profits and valuations. They increase R&D and nondisclosure agreements.

We examine the determinants of vertical acquisitions using product text linked to product vocabulary from input-output tables. We find that the innovation stage is important in understanding vertical integration. R&D-intensive firms are less likely to become targets of vertical acquisitions. In contrast, firms with patented innovation are more likely to sell to vertically related buyers. Firms’ R&D intensity is a more important deterrent to their vertical acquisitions when the provision of innovation incentives by potential acquirers is more difficult. The role of patents in fostering vertical acquisitions is more prevalent when potential buyers face a higher risk of holdup.

We examine how product market threats influence firm payout policy and cash holdings. Using firms' product text descriptions, we develop new measures of competitive threats. Our primary measure, product market fluidity, captures changes in rival firms' products relative to the firm's products. We show that fluidity decreases firm propensity to make payouts via dividends or repurchases and increases the cash held by firms, especially for firms with less access to financial markets. These results are consistent with the hypothesis that firms' financial policies are significantly shaped by product market threats and dynamics.