We have a double header this Wednesday. Sam Arts from Katholieke Universiteit Leuven will be joining me to present: “Switching Fields: Paradise of Creativity – or Loss of Human Capital?” Then Gary Dushnitsky, visiting from London Business School, will present “Entrepreneurial Optimism and Venture Capital Valuations.” As usual, we’ll be in 330 Cheit at 12:10pm.
There are no papers, but the abstracts are below:
What happens to an inventor’s creative output when they switch fields? Switching results in a loss of expertise that might harm subsequent productivity, yet exposure to new knowledge and approaches might also increase creativity. Using Michigan’s unintentional reversal of its non-compete enforcement policy as an exogenous source of variation in changing fields, we find that switching inventors create more novel yet less useful patents. The effects strengthen for fields with deeper knowledge; inventors that switch further also take longer to resume patenting after moving. Our findings provide evidence for the paradox of experience and exploitation versus learning and exploration for innovation.
Optimism is a well-documented entrepreneurial characteristic. To date, the literature has mostly focused on the (erroneous) actions of the individual optimistic entrepreneur, yet, less attention was given to the effect this characteristic has on the strategic interaction between entrepreneurial ventures and prospective resources providers. The following question motivates our study: How does optimism affect entrepreneur-investor interaction and what are the implications to ventures’ valuations? We conjecture that contingent-pay contracts (e.g., preferred shares) can deter charlatans but may be less effective in screening optimists, thus resulting in an optimism discount. We further conjecture that IPR regime may minimize the discount: an entrepreneur can attract higher valuation by disclosing her invention, but she would do so only when disclosure is not vulnerable to imitation (e.g., if patents are effective). Analyses of a sample of international venture capital investments between 1990 and 2006, using a novel measure of cross-country optimism levels, support our hypotheses. The results advance our understanding of entrepreneurial resource assembly, and particularly the nature of the interactions between entrepreneurs and resources providers.
In the doctoral reading class this week, we’ll be discussing Deepak Hegde’s Organization Science paper on patent strategies at IBM and his paper presented last week at the NBER. He’ll be joining us via Skype at 2:30pm.
Last week, Elena Kulchina from Duke presented her work on Russian startups and variation in trust between the owner and manager, based on their birth regions. Interestingly, the worst performance occurs with a less trusting owner and a more trusting manager, as the manager struggles to respond to micro management and lack of autonomy.