Hyun Joong Im

Product Market Competition and the Value of Innovation: Evidence from US Patent Data

This study investigates the relationship between product market competition and the market value of innovation using firm-level patent data of US firms over the period 1977–2005. We find that there is an inverted U-shaped relationship between competition and the value of innovation. Furthermore, we show that there is an “asymmetric” causal effect of intensifying product market competition on the market value of innovation, using a quasi-natural experiment based on tariff-cut events for US manufacturing firms between 1977 and 2006: a firm’s incentive to innovate tends to get stronger in response to a tariff cut when product market competition is very mild, while it tends to get weaker when very severe.

The Effect of Technological Imitation on Corporate Innovation

Abstract Technological imitation may play a crucial role in motivating firms to innovate. However, theoretical predictions and empirical findings on the role of imitation have not yet reached a consensus. One major gap in the previous studies is that the empirical tests are based on samples consisting of only one industry over a short period of time. This study uses a novel measure of industry-level technological imitation proxied by quick citations by competitors to examine the relationship between imitation and innovation. Using US patent data for the period 1977–2005, we find that there are inverted U-shaped relationships between the degree of industry-level technological imitation and industry-level innovation activities and between the degree of industry-level technological imitation and the value of firm-level innovation. Our results suggest that positive externalities from the interactions among firms during the innovation process outweigh the negative effects of free-riding concerns on firms’ innovation activities and incentives to innovate up to a high degree of technological imitation, while free-riding concerns outweigh the positive externalities when the level of technological imitation is extremely high. The sector-by-sector analyses show that the relationship between technological imitation and the quantity and market value of innovation are not very different across Pavitt sectors. A comparative analysis on the role of imitation between agglomerated and non-agglomerated industries suggests that the positive effect of a moderate level of imitation and the negative effect of an excessive level of imitation are more pronounced for agglomerated industries. The results suggest that creating innovation clusters, such as Silicon Valley in the United States and Shenzhen City in China, and allowing different innovators to cooperate, imitate and compete with each other would be very effective in promoting corporate innovation. However, an excessively high level of technological imitation is more detrimental for firms in innovation clusters because it lowers those firms’ incentives to innovate more radically.

Sticky Dividends: A New Explanation

This study proposes a generalized partial adjustment model of dividends in which managers set target dividends based on adaptively-formed earnings prospects. We show that firms adjust dividends to their target payouts much faster than previously documented. When managers form future earnings expectations based on a longer time-series of earnings, target dividends tend to become more stable. Thus, actual dividends tend to be more in line with the targets, driving up the speed of adjustment. Our model offers an insight that sticky dividends could be a consequence of managers’ attempts to match dividend payouts with the smooth targets.

The Dynamics of Corporate Dividend Policy: Revisiting the Speed of Adjustment to Target Payouts

Past studies show that firms adjust dividends very slowly to their dividend targets. This paper reinvestigates the dynamics of corporate dividend policy using a generalized partial adjustment model. We show that firms adjust dividends to their target payouts much faster than previously documented. This study also shows that their target dividends are predominantly driven by firm-specific effects, and tend to become significantly more stable when managers form future earnings prospects adaptively. Thus, dividend-smoothing behavior could arise from their attempts to conform to the target payouts, thereby leading to higher dividend adjustment speeds.