Paroma Sanyal

Labor Disputes and the Economics of Firm Geography: A Study of Domestic Investment in India

Abstract Acrimonious relations between employers and employees in developing countries have often been cited as impediments to progress. This article considers various measures of labor disputes and investigates whether these have detrimental effects on the location choice of new domestic investment across the various states of India. Conventional wisdom holds that an increase in measures such as the number of strikes, the number of man‐days lost in work stoppages, and the percentage of unionized workers would hinder the location of new projects. Using panel data and a fixed‐effects methodology that controls for the effect of state‐specific unobservables, we find significant evidence that this is indeed the case in India. Furthermore, disaggregation by industrial classifications shows that, although labor disputes continue to exert negative effects, location choices are also conditioned on factors such as proximity to raw materials and minerals.

Product Market Competition and Upstream Innovation: Evidence from the U.S. Electricity Market Deregulation

This paper studies the innovation response of upstream technology suppliers when their downstream buyers transition from regulation to competition. By modeling the impact of the 1990s U.S. electricity deregulation on patenting, we find that after deregulation, the net competition effect (comprising the pure competition and the escape competition effect) decreased innovation by 18.3 and the appropriation effect increased innovation by 19.6. Other deregulation factors have led to a 20.6 decline. In aggregate, after deregulation, innovation by the upstream technology suppliers has declined by 19.3, and upstream innovation quality and generality have declined as well.

Deregulation, Restructuring and Changing R&D Paradigms in the US Electric Utility Industry

This paper studies the impact of electricity deregulation and restructuring on research and development (R&D) expenditures of investor owned utilities. The differing pace of deregulation in the fifty states provides heterogeneity in institutional structure and competitive forces, and showcases the response of R&D funding to changing institutional environments. Based on a panel of all major investor-owned utilities from 1989-1997, this paper analyzes various political constraints, institutional change, and firm-specific financial and structural factors that have contributed to the decline of R&D expenditure in the U.S. electric utility industry. R&D is modeled as a two-stage process where firms first decide whether to invest in research depending on their critical mass and state characteristics, and then conditional on a positive decision, decide on the level of expenditure. A variation of the Heckman model is estimated in a panel data setting, allowing for separate effects of selection and intensity. The primary findings are: First, greater deregulation and competition has a positive effect on R&D whereas a higher probability of deregulation adversely affects research spending. The start date for retail competition and level and policies for stranded cost recovery do affect spending. Second, the response of R&D to financial and other firm attributes varies with the state of deregulation and provides insights into firm behavior in a regulated context. Third, the institutional and competitive factors interact in a way that suggest that full deregulation, coupled with effective retail competition may mitigate the problem of declining electricity R&D by the utilities.

R&D Choice in Restructured Industries: In-house v/s Collaborative Research in the US Electricity Industry

This paper studies the impact of market restructuring on the character of research and development (R&D) expenditures. Using a political economy approach, we consider the likely differences in internal and collaborative R&D activities under regulatory and market regimes, and test the predictions on R&D investments by a panel of investor owned electric utilities between 1989 and 1997. We find that spending on internal projects declines with the uncertainty associated with restructuring, but recuperates for companies in states that transition to relative competitive market regimes. Alternatively, external R&D expenditures (outsourced or consortium activities) are initially higher for firms subject to the uncertainty of the policy transition but subsequently decline in restructuring states. Our analysis yields insights into the incentives for firms to perform research internally or to outsource it, and suggests some new guidelines for effective public technology programs.

Regulatory Risk, Market Risk and Capital Structure: Evidence from U.S. Electric Utilities

There is a sharp contrast when one compares firm leverage ratios between U.S. and British electric utilities, which have both been deregulated in the past decade. In the U.S., leverage ratios have been declining while in the U.K., they show a marked increase. To better understand the decline in leverage of U.S. investor owned electric utilities, this paper investigates the impact of deregulation on the capital structure decisions of these firms. We find that the heightened uncertainty created by the deregulation process and the associated increase in both regulatory and market risks have resulted in firms reducing their leverage ratios. Specifically, we find that the most important factors that impact capital structure are: 1) the stranded cost recovery and divestiture policies and 2) the potential loss of market share due to competition and fears of downward pressure on prices i.e. market risk. We also find that belonging to a holding company lowers leverage while the possibility of a merger decreases leverage. Identifying the importance of these variables for a firms financing decisions not only furthers our understanding of capital structure choice but also sheds light on the financial effects of deregulation, which have not been previously documented.

Innovation, R&D and Managerial Compensation

This paper investigates whether aligning manager and owner incentives can improve the innovation performance of firms. We find that pay-sensitivity works to align managerial actions to shareholder interests. As managerial wealth becomes more sensitive to the firm’s stock price the innovation performance of a firm improves. Entrenched managers, however, are more likely to act myopically and follow strategies that result in a large number of low quality patents. Short-term incentives have little impact on innovation. Higher managerial tenure increases the probability of R&D spending and innovation quality and thus better aligns the managers’ actions with a firm’s long-term goals. CEO control of the firm, however, decreases its innovation performance.

Incentivizing Managers to Build Innovative Firms

We investigate whether the equity-linked components of top executive pay have an effect on patenting activity within a firm. We find a positive relationship between firm patenting activity and managerial alignment incentives created by stock and stock option grants. Prior work has shown that the market value of a firm reflects the value of its patents. Thus, our finding suggests innovation is one such channel through which equity alignment incentives positively impact firm value. On the other hand, we find that the risk-taking incentive from stock options does not increase patenting.

Is There Room for Growth? Debt, Growth Opportunities and the Deregulation of U.S. Electric Utilities

We investigate the impact of growth opportunities on the financing decisions of investor-owned electric utilities in the U.S. when the electricity sector was deregulated. We find that the relationship between leverage and growth opportunities can be positive or negative, depending on the nature of the growth opportunity. Despite these opposing effects on leverage ratios, we find that electric utilities are issuing new debt in response to the same growth opportunities. Our results highlight that financing choice is not a simple one-period decision but a dynamic occurrence and that conventional leverage regressions cannot fully capture this dynamic response.

Quantifying Changes in Innovation: Patenting Activity and Ipr Regimes

This paper develops a sequential application-grant framework to analyze competing explanations for the two U.S. patent surges during the mid-eighties and early nineties: (a) the ?friendly court? hypothesis argues that legislative changes in the 1980s lowered the cost of patenting and led to the increase in patenting activity and (b) the regime laxity hypothesis argues that the 1990s intellectual property regime shift lowered examination standards and caused the 1990s patent surge. Results from the empirical models reject the ?friendly court? hypothesis as the primary source of the eighties patent surge. The nineties surge can be attributed partly to the regime laxity hypothesis.