Natarajan Balasubramanian

What Happens When Firms Patent? New Evidence from U.S. Economic Census Data

We build a new concordance between the NBER Patent Data and U.S. Census microdata and use it to examine what happens when firms patent. We find strong evidence that increases in patent stock are associated with increases in firm size, scope, and skill and capital intensity. We find somewhat weaker evidence that changes in patenting are positively correlated with changes in total factor productivity. We also analyze first-time patentees and find similar effects following initial patent application. Together, these results suggest that patenting is indeed associated with real changes within firms, in particular with growth through increases in scope.

Capital Resalability, Productivity Dispersion, and Market Structure

We propose an industry-level index of capital resalabilitythe share of used capital in aggregate industry capital expenditurethat relates (inversely) to sunkenness of investments. Using data from U.S. manufacturing, we then test the effect of capital resalability on industry productivity dispersion, mean productivity, and industry concentration. As predicted by standard models of industry equilibrium with heterogeneous firms, we find that increases in capital resalability are associated with a reduction in productivity dispersion, and an increase in the mean and median of the productivity distribution. Furthermore, we find that capital resalability is negatively correlated with industry concentration.

New Plant Venture Performance Differences Among Incumbent, Diversifying, and Entrepreneurial Firms: The Impact of Industry Learning Intensity

Prior firm experience, firm capabilities, and the industry environment are known to be important determinants of new-venture performance. We hypothesize that firm experience prior to setting up a new venture influences the ability to learn from experience after start-up (which is a key capability), and that this relationship is moderated by the importance of learning by doing within the new ventures industry (which is a critical aspect of the industry environment). We argue that together, these relationships influence performance differences among new plant ventures of incumbents, diversifying entrants, and entrepreneurial (de novo) entrants. Using data on 47,915 new plant ventures in U.S. manufacturing, we find that incumbents and diversifying entrants establish significantly more productive new plants than de novo entrants, and that this advantage significantly increases with the importance of learning by doing in an industry (industry learning intensity). These productivity differences appear to be driven more by learning subsequent to plant start-up than by initial disparities in productivity. Together, these findings strongly suggest that pre-start-up experience adds to the process of post-start-up learning, and that the industry learning environment plays an important role in whether entrepreneurial firms can achieve a competitive advantage over existing firms. This paper was accepted by Lee Fleming, entrepreneurship.

Measuring Value Creation and Its Distribution Among Stakeholders of the Firm

We present a general methodology that uses publicly available data to estimate the magnitude of economic value creation and its distribution among a firm’s stakeholders. Based on productivity literature in economics, the methodology goes beyond the conventional focus on shareholders and allows the examination of value appropriation by other stakeholders of the firm including employees, customers and government. We illustrate the methodology using historical data on General Motors and Toyota.

Screening Spinouts? How Noncompete Enforceability Affects the Creation, Growth, and Survival of New Firms

This paper examines how the enforceability of noncompete covenants affects the creation, growth, and survival of spinouts and other new entrants. The impact of noncompete enforceability on new firms is ambiguous, since noncompetes reduce knowledge leakage but impose hiring costs. However, we posit that enforceability screens formation of within-industry spinouts (WSOs) relative to non-WSOs by dissuading founders with lower human capital. Using data on 5.5 million new firms, we find greater enforceability is associated with fewer WSOs, but relative to non-WSOs, WSOs that are created tend to start and stay larger, are founded by higher-earners, and are more likely to survive their initial years. In contrast, we find no impact on non-WSO entry, and a negative effect on size and short-term survival.

Macroeconomic Environment During Infancy as a Possible Risk Factor for Adolescent Behavioral Problems

CONTEXT Economic difficulties at the individual level can lead to a number of behavioral problems, including substance abuse and delinquent behaviors. OBJECTIVE To examine the influence of a nationwide adverse economic environment during infancy, specifically, the high unemployment rates during and after the 1980 and 1981-1982 recessions, on rates of subsequent adolescent substance use and delinquent behaviors. DESIGN We used data from the National Longitudinal Survey of Youth 1997 and estimated logit regressions to examine the effect of changes in unemployment rates during infancy on the incidence of adolescent behavioral problems, controlling for known youth, family, and environmental risk factors. SETTING Adolescents living in the United States in 1997. PARTICIPANTS Nationally representative sample of 8984 adolescents born from January 1, 1980, through December 31, 1984. MAIN OUTCOME MEASURES Probability of engaging in substance use (marijuana, smoking, alcohol, and hard [ie, illegal] drugs) and delinquent behaviors (arrest, handgun use, gang affiliation, petty and major theft, property destruction, and assaultive behavior). RESULTS Exposure to a 1% deviation from mean regional unemployment rates at the age of 1 year was associated with an increase in the odds ratios of engaging in marijuana use (1.09 [95% CI, 1.04-1.14]), smoking (1.07 [1.03-1.11]), alcohol use (1.06 [1.02-1.10]), arrest (1.17 [1.09-1.25]), gang affiliation (1.09 [1.00-1.19]), and petty (1.06 [1.01-1.10]) and major theft (1.11 [1.05-1.18]). No significant associations were noted with use of hard drugs, property destruction, and assaultive behavior. CONCLUSIONS The macroeconomic environment during infancy can have serious long-term effects on substance use and delinquent behavior. These potential long-term effects can play an important role in policy making for adolescent mental health care.

Learning‐By‐Doing and Market Structure

Applying the Olley‐Pakes estimation technique to an augmented production function, we estimate rates of learning‐by‐doing in over 250 SIC4 industries in the U.S. manufacturing sector. We then examine the link between learning and producer concentration using Suttons bounds approach. We find that the lower bound of concentration is higher in high‐learning industries, which suggests that learning‐by‐doing has characteristics of an endogenous sunk cost.

Measuring Value Creation and Appropriation in Firms: Application of the VCA Model

In related work we introduce the VCA model to estimate the economic value created by a firm and appropriated by its stakeholders, including employees, shareholders, suppliers and customers. This study provides two specific empirical applications. In the first, we use publicly available data from the US airline industry to illustrate how the basic VCA model can be applied and extended to include multiple stakeholder groups. In the second application, we provide estimates for three global automobile companies (GM, Toyota and Nissan), showing how the model can be reformulated using value added when data on suppliers are not available. In both industries we find substantial heterogeneity among firms in the creation and distribution of economic value.

ENFORCING COVENANTS NOT TO COMPETE: THE LIFE-CYCLE IMPACT ON NEW FIRMS

We examine the impact of enforcing non-compete covenants (CNC) on the formation and performance of new firms using matched employer-employee data on 30 US states. To identify the impact of CNC, we exploit the inter-state variation in CNC enforcement along with the fact that courts do not enforce such covenants between law firms and departing lawyers in any state. Using a difference-in-difference-in-difference specification with law firms and firms that are not withinindustry spinouts as the baseline, we find states with stricter CNC enforcement have fewer, but larger within-industry spinouts that are more likely to survive their nascent years, and conditional on survival, grow faster during those years. These results are consistent with CNC enforcement having a selection effect on within-industry spinouts. Particularly, with stricter enforcement, only founders with higher-quality ideas and resources choose to overcome CNC-related barriers, which reduces entry rate but increases observed short-term performance of these spinouts.

Value Creation and Appropriation in Firms: Conceptual Review and a Method for Measurement

The notion of value creation by firms is central to strategy. Despite its importance, value creation has been defined in many different ways, often with a narrow focus on shareholders, which can lead to confusion about the notion. In this paper, we clarify some commonly used concepts of value creation. We then discuss one particular concept: economic gain, or the change in economic value created from one period to the next. We elaborate on how such value is created by the firm and distributed among a set of stakeholders, including shareholders, managers, employees, suppliers and customers. We conclude by introducing a method for quantifying this gain and its distribution among stakeholders of the firm.