Sharon Belenzon

Innovation in Business Groups

Using novel data on European firms, this paper investigates the relationship between business groups and innovation. Controlling for various firm characteristics, we find that group affiliates are more innovative than standalones. We examine several hypotheses to explain this finding, focusing on group internal capital markets and knowledge spillovers. We find that group affiliation is particularly important for innovation in industries that rely more on external funding and in groups with more diversified capital sources, consistent with the internal capital markets hypothesis. Our results suggest that knowledge spillovers are not the main driver of innovation in business groups because firms affiliated with the same group do not have a common research focus and are unlikely to cite each others patents.

University Knowledge Transfer: Private Ownership, Incentives, and Local Development Objectives

We study the impact of private ownership, incentive pay, and local development objectives on university licensing performance. We develop and test a simple contracting model of technology‐licensing offices using new survey information together with panel data on U.S. universities for 1995–99. We find that private universities are much more likely to adopt incentive pay than public ones but that ownership does not affect licensing performance conditional on the use of incentive pay. Adopting incentive pay is associated with about 30–40 percent more income per license. Universities with strong local development objectives generate about 30 percent less income per license but are more likely to license to local (in‐state) start‐up companies. In addition, we show that government constraints on university licensing activity are costly in terms of forgone license income and the creation of start‐up companies. These results are robust to controls for observed and unobserved heterogeneity.

Spreading the Word: Geography, Policy, and Knowledge Spillovers

Using new data on citations to university patents and scientific publications, we study how geography affects university knowledge spillovers. Citations to patents decline sharply with distance and are strongly constrained by state borders. The effect of distance on citations to scientific publications is less sharp, and the state border effect on publications is significant only for lower-quality public universities. We show that the state border effect is heterogeneous and strongly influenced by university and state characteristics and policies. It is larger for universities that are public and that have strong local development policies, and in states with strong noncompete labor laws, greater reliance on in-state educated scientists, and lower rates of interstate scientific labor mobility. We confirm the impact of noncompete statutes by studying a policy reform in Michigan.

Cumulative Innovation and Market Value: Evidence from Patent Citations*

If innovations are rapidly made obsolete by subsequent discoveries, firms may have lower ex ante incentives to invest in R&D. This article empirically demonstrates the relevance of this problem and shows that it might be mitigated if the inventing firm reabsorbs its ‘spilled’ knowledge in its later inventions. Using new data on sequences of patent citations, I estimate the relationship between a firms stock market value and the citations it receives. Citations on which the firm builds in a future period are positively related to market value, whereas citations on which the firm does not build are negatively related to value.

Capital Markets and Firm Organization: How Financial Development Shapes European Corporate Groups

We investigate the effect of financial development on the formation of European corporate groups. Because cross-country regressions are hard to interpret in a causal sense, we exploit exogenous industry measures to investigate a specific channel through which financial development may affect group affiliation: internal capital markets. Using a comprehensive firm-level data set on European corporate groups in 15 countries, we find that countries with less developed financial markets have a higher percentage of group affiliates in more capital-intensive industries. This relationship is more pronounced for young and small firms and for affiliates of large and diversified groups. Our findings are consistent with the view that internal capital markets may, under some conditions, be more efficient than prevailing external markets, and that this may drive group affiliation even in developed economies. This paper was accepted by Bruno Cassiman, business strategy.

Intracompany Governance and Innovation

This paper examines the relation between ownership, corporate form, and innovation for a cross-section of private and publicly traded innovating firms in the US and 15 European countries. A striking novel observation emerges from our analysis: while most innovating firms in the US are publicly traded conglomerates, a substantial fraction of innovation is concentrated in private firms and in business groups in continental European countries. We find virtually no variation across US industries in the corporate form of innovating firms, but a substantial variation across industries in continental European countries, where business groups tend to be concentrated in industries with a slower and more fundamental innovation cycle and where intellectual protection of innovators seems to be of paramount importance. Our findings suggest that innovative companies choose the corporate form most conducive to R&D, as predicted by the Coasian view of how firms form. This is especially true in Europe, where there are fewer regulatory hurdles to the formation of business groups and hybrid corporate forms. It is less the case in the US, where conglomerates are generally favored.

Resource redeployability, uncertainty, and entry

Firm-level rigidity has long interested strategy researchers. We propose an as-yet-unexplored role of firm rigidity: entry deterrence. Prospective entrants face tremendous uncertainty, so scholars suggest they “experiment”, enter “lean”, then adapt to new information. Rigidity limits firms’ ability to do that. We predict that in rigid settings, (a) entry will be lower, (b) entrants’ early performance will be higher as they are less likely to enter speculatively, (c) and entrants’ performance and factor mix are less likely to converge to that of incumbents. We expect these effects to be mitigated when, despite low rigidity, firms cannot adjust due to frictions in factor markets. We operationalize rigidity as factor-rigidity and find support for our predictions using data from Western Europe from 2001-2014.Academics, the media, and policymakers have all raised concerns about the implications of human workers being replaced by machines or software. Few have discussed the implications of the reverse: firms’ ability to replace capital with workers. We show that this flexibility can help new firms over- come uncertainty and increase entrepreneurial entry. We develop a simple real options model where permissive labor regulations allow firms to take advantage of capital-labor substitutability by replacing ’rigid’ capital with ’flexible’ labor. The model highlights institutional, technological, and organizational preconditions to using this flexibility. Using a large and comprehensive dataset on entry by standalone firms and group affiliates, we provide evidence in support of the model.

Workers on Tap? How Labor Flexibility Fosters Experimentation and Business Creation

Firm-level rigidity has long interested strategy researchers. We propose an as-yet-unexplored role of firm rigidity: entry deterrence. Prospective entrants face tremendous uncertainty, so scholars suggest they “experiment”, enter “lean”, then adapt to new information. Rigidity limits firms’ ability to do that. We predict that in rigid settings, (a) entry will be lower, (b) entrants’ early performance will be higher as they are less likely to enter speculatively, (c) and entrants’ performance and factor mix are less likely to converge to that of incumbents. We expect these effects to be mitigated when, despite low rigidity, firms cannot adjust due to frictions in factor markets. We operationalize rigidity as factor-rigidity and find support for our predictions using data from Western Europe from 2001-2014.Academics, the media, and policymakers have all raised concerns about the implications of human workers being replaced by machines or software. Few have discussed the implications of the reverse: firms’ ability to replace capital with workers. We show that this flexibility can help new firms over- come uncertainty and increase entrepreneurial entry. We develop a simple real options model where permissive labor regulations allow firms to take advantage of capital-labor substitutability by replacing ’rigid’ capital with ’flexible’ labor. The model highlights institutional, technological, and organizational preconditions to using this flexibility. Using a large and comprehensive dataset on entry by standalone firms and group affiliates, we provide evidence in support of the model.

Papers to patents

The withdrawal of large US corporations from research is narrowing the scope of innovation. The withdrawal of large US corporations from research is narrowing the scope of innovation.

Quitting Time: Manager's Age and the Performance of Closely Held Firms

Using detailed ownership and financial information available for a large sample of owner-managed private firms in three West European countries, this paper examines the relationship between managers age and firms performance. Tracking firms over time, we find that as a manager ages, the firm experiences slower growth and a decline in investment, especially when a manager gets closer to retirement age. These results are stronger in industries more reliant on human capital, such as service and creative industries. Moreover, older managers are less likely to adopt managerial practices associated with better firm performance. Regional financial development moderates the relationship between a managers age and a firms performance. Fewer firms in more financially developed regions have older managers and in those regions the adverse effect of older managers is less pronounced. Our findings point to the importance of financial markets in facilitating the reallocation of assets from firms with older to firms with younger managers.