This paper examines the ability of latent firm and manager characteristics to explain variation in innovation productivity. Evidence suggests that latent, but not observable, firm and manager characteristics explain a large portion of the variation in a firm's innovation productivity. Our tests mostly show that latent firm characteristics explain slightly more of the variation relative to latent manager characteristics. For robustness, our analysis shows no significant difference in the average change in innovation productivity and in abnormal returns following two different samples of manager-firm separations: one where managers' expected innovation abilities are high and the other a random sample. Overall, the results suggest that compared to firm characteristics, managers matter moderately less for corporate innovation

This paper provides evidence of local innovation spillovers (i.e., innovation by one firm fostering innovation by neighboring firms). First, I document that exogenous shocks to innovation by listed firms affect innovation by private firms in the same geographical area and that such local innovation spillovers decline rapidly with distance. Second, these local innovation spillovers stem from knowledge diffusing locally through two channels: learning across local firms and inventors moving from their employer to both existing firms and newly started spin-outs. Finally, I study the two-way relations between innovation spillovers and the availability of capital. I find that local innovation spillovers cause venture capital funds from outside the area to invest more in the local area, and that capital availability amplifies local innovation spillovers

We examine whether and how national culture influences corporate innovation using a newly available comprehensive database on innovation around the world. After controlling for the impacts of formal institutions, and firm-level and country-level variables, we find that culture has relevance for innovation: The probability of a firm innovating is higher in individualistic, indulgent, and long-term oriented societies, as well as in cultures with less power distance, less uncertainty avoidance, and less masculine cultures. In the innovative firms subsample, we continue to find the same significant impact of culture on firms' innovation performance/quality. Our results are robust to endogeneity concerns, different model specifications, alternative measures of innovation and culture, and different subsample analyses

In this article, we use cross-state panel and cross-U.S. commuting-zone data to look at the relationship between innovation, top income inequality and social mobility. We find positive correlations between measures of innovation and top income inequality. We also show that the correlations between innovation and broad measures of inequality are not significant. Next, using instrumental variable analysis, we argue that these correlations at least partly reflect a causality from innovation to top income shares. Finally, we show that innovation, particularly by new entrants, is positively associated with social mobility, but less so in local areas with more intense lobbying activities

Innovating firms pay more bribes than noninnovators across 25,000 firms in 57 countries. The difference is larger in countries with more bureaucratic regulation and weaker governance. Innovators that pay bribes do not receive better services and do not have greater propensity to engage in other illegal activities such as tax evasion. Thus, innovators are more likely to be victims of corruption than perpetrators. Our findings point to the challenges facing entrepreneurs in developing countries and are consistent with the view that rent seeking by government officials unlike private criminal activity is more likely to target innovators

We examine whether the structure of compensation for the divisional CEO is related to subsequent innovative activity within the division, and whether the divisional CEO's compensation is structured as a function of the expected innovation opportunity set facing the division. Both the expected innovation opportunity set and the divisional executive's compensation contract are treated as endogenous variables by adopting a simultaneous equation approach. We find modest evidence that the proportion of total compensation tied to long-term components has a positive relation with future innovation, but no evidence that this proportion has a positive relation with the expected innovation opportunity set

We propose that innovative originality is a valuable organizational resource and that owing to limited investor attention and skepticism of complexity, greater innovative originality may be undervalued. We find that firms' innovative originality strongly predicts higher, more persistent, and less volatile profitability and higher abnormal stock returns, findings that are robust to extensive controls. The return predictive power of innovative originality is stronger for firms with higher valuation uncertainty, lower investor attention, and greater sensitivity of future profitability to innovative originality. This evidence suggests that innovative originality acts as a "competitive moat" and is undervalued by the market

This paper examines the role of local attitudes toward gambling on corporate innovative activity. Using a county’s Catholics-to-Protestants ratio as a proxy for local gambling preferences, we find that firms located in gambling-prone areas tend to undertake riskier projects, spend more on innovation, and experience greater innovative output. We contrast the local gambling effect with chief executive officer (CEO) overconfidence, another behavioral effect reported to influence innovation. We find that local gambling preferences are a stronger determinant of innovative activity, with CEO overconfidence being more relevant to innovation in areas where gambling attitudes are strong

We document empirical support for a key micro-level channel—innovation by young, private firms—through which financial sector deregulation affects economic growth. We find that intrastate banking deregulation, which increased the local market power of banks, decreased the level and risk of innovation by young, private firms. In contrast, interstate banking deregulation, which decreased the local market power of banks, increased the level and risk of innovation by young, private firms. These contrasting effects on innovation also translated into contrasting effects on economic growth. Our study suggests that the nature of financial sector deregulation crucially affects its potential benefits to the real economy

We investigate the effect of stock market liberalization on technological innovation. Using a sample of 20 economies that experience stock market liberalization, we find that these economies exhibit a higher level of innovation output after liberalization and that this effect is disproportionately stronger in more innovative industries. The relaxation of financial constraints, enhanced risk sharing between domestic and foreign investors, and improved corporate governance are three plausible channels that allow stock market liberalization to promote innovation. Finally, we show that technological innovation is a mechanism through which stock market liberalization affects productivity growth and therefore economic growth. Our paper provides new insights into the real effects of stock market liberalization on productivity growth and the economy