Alminas Zaldokas

Patents as Substitutes for Relationships

Firms face a trade-off between patenting, thereby disclosing innovation, and secrecy. We show that this trade-off interacts with firms’ financing choices. As a shock to innovation disclosure, we study the American Inventor’s Protection Act that made firms’ patent applications public 18 months after filing, rather than when granted. We find that such increased innovation disclosure helps firms switch lenders, resulting in lower cost of debt, and facilitates their access to syndicated-loan and public capital markets. Our evidence lends support to the idea that public-information provision through patents and private information in financial relationships are substitutes, and that innovation disclosure makes credit markets more contestable.

Corporate Governance and International Trade

We investigate how corporate governance affects the ability of firms to compete in international markets. Our empirical analysis draws on a variety of methods, including instrumental variable regressions, natural experiments and event studies. We find that firms subject to worse corporate governance are hurt more by the increase in foreign competition, especially so if they are less productive, located closer to foreign competitors, and face higher financial constraints.

Naughty Firms, Noisy Disclosure: The Effects of Cartel Enforcement on Corporate Disclosure

We empirically study how collusion in the product markets affects firms’ financial disclosure strategies. By exploiting exogenous variations to the costs of illegal pricefixing, we find that U.S. firms start sharing more detailed information in their financial disclosure about their customers, contracts, and products, potentially benefiting peers and helping to tacitly coordinate actions in product markets. At the same time, the disclosure on firms’ competitive environment, which might benefit antitrust regulators, becomes more murky. Our findings suggest that transparency in financial statements can come at the expense of consumer welfare.We empirically study how collusion in product markets affects firms’ financial disclosure strategies. We find that after a rise in cartel enforcement, U.S. firms start sharing more detailed information in their financial disclosure about their customers, contracts, and products. This new information potentially benefits peers by helping to tacitly coordinate actions in product markets. Indeed, changes in disclosure are associated with higher future profitability. Our results highlight the potential conflict between securities and antitrust regulations.

Busted! Now What? Effects of Cartel Enforcement on Firm Value and Corporate Policies

In a cross-country study we look at the staggered passage of national leniency laws over 1990-2012. We show that these laws lead to more cartel convictions, and generally increase the costs of collusion by reducing the average gross margins of the affected firms. We further examine how changing costs of collusion shape firm boundaries and show that firms reorganize their activities by engaging in more horizontal acquisitions, both in the roles as the acquirer and the target. These acquisitions tend to be associated with higher announcement returns. We find little evidence of the increase in strategic alliances or greenfield investments.In a cross-country study, we investigate how staggered passage of national leniency programs from 1990-2012 has affected firms’ margins and merger activity. We find that these programs, which give amnesty to cartel conspirators that cooperate with antitrust authorities, reduced the gross margins of the affected firms. However, firms reacted to new regulations by engaging in more mergers that had negative effects on downstream firms. Our results imply that although these programs were generally effective, their full potential was mitigated by mergers that substitute for cartels, and that a strong merger review process might be a prerequisite for strengthening anti-collusion enforcement.