I am a Ph.D. candidate in the finance area at UCLA Anderson School of Management. My research interests are in corporate finance, governance, and innovation. My job market paper studies financial constraints on R&D investments for mature, patent-practicing firms during a profit windall event, which arose from an unexpected provision in U.S. patent law that extended the life of patents owned that were about to expire.
I will be available for interviews at the 2017 AFA meeting in Chicago, Illinois (January 6-8).
Investment Channels in Innovation and Profit Windfalls from Patent Term Extensions
Do mature, patent-practicing firms face financial constraints on both their ordinary and R&D investments? What are the corporate investment channels for R&D? An unanticipated transitional provision included in the Uruguay Round Agreements Act extended the life of qualifying unexpired patents by up to 3 years, giving the corresponding owners a longer period of exclusionary rights over their inventions. By exploiting the random timing of patent expiration around a policy cutoff date, I find that a one standard deviation increase (15 percentage points) in the citation-weighted patent portfolio share of term-extended patents owned that would have expired if not for the transitional provision leads to an increase in cash flow by 1.5 percent of book assets. Given these windfall profits, I find evidence of capital investment, debt issuance reduction, and acquisitions of external technology. Combining the instrumental variable and difference-in-differences methods, I show that capital investment, debt issuance, and patent acquisitions are sensitive to cash flow for innovating firms. Internal investments in R&D, on the other hand, show no apparent response, suggesting the possible presence of R&D smoothing and high R&D adjustment costs for large, mature firms.
Presented at the Ninth Annual Searle Conference on Innovation Economics.