Abstract: Over the last half-century, economic growth stagnated but stock-market wealth boomed. I present evidence that declining innovation productivity reconciles these trends. At the macro level, I document that R&D spending has fallen relative to value, while M&A spending has doubled relative to R&D. At the micro level, most of the increase in aggregate valuation ratios is explained by a reallocation of sales shares toward high-valuation firms. Using a Schumpeterian model of growth and asset prices, I find that declining innovation productivity explains these facts. When innovation productivity falls, R&D falls and M&A rises. This concentrates production into the hands of the most efficient (high-valuation) incumbents, causing aggregate value to boom. Quanti- tatively, this explains most of the decline in growth and the rise in valuations. It also helps explain other salient trends, including declining firm entry, rising concentration, and falling interest rates. While stock-market wealth boomed, the present value of consumption (consumer welfare) stagnated with output.
Discussant: Erik Loualiche, University of Minnesota
Abstract: This paper investigates how trust shocks affect innovation networks through an incomplete contracting framework. Using academic misconduct cases in China (2015-2021) as identification strategy, we construct a comprehensive dataset combining patent activities and venture capital investments. We document three key findings. First, academic misconduct triggers persistent declines in university-industry collaboration, reducing both joint patents and citations to university research. Second, affected firms strategically shift toward inter-firm R&D alliances. This substitution decreases patent basicness but increases product orientation. Third, trust shocks propagate to capital markets, with venture capitalists reducing investments in firms previously linked to misconduct-involved universities. Our findings highlight trust as an irreplaceable mechanism in innovation governance and demonstrate how trust breakdowns reconfigure contractual relationships and resource allocation in innovation networks.
Mehmet Ihsan Canayaz, Pennsylvania State University
Isil Erel, Ohio State University
Umit Gurun, University of Texas-Dallas
Yufeng Wu, Ohio State University
Abstract: Protectionist policies intended to revitalize US chip manufacturing backfired, ultimately
weakening the domestic workforce they aimed to rebuild. Instead of fostering
talent growth, these measures diminished hiring for critical science and engineering
roles, particularly in entry-level positions and at firms impacted by tariffs. Companies
reliant on foreign talent reduced domestic hiring and shifted recruitment to countries
with more favorable immigration policies. US protectionism also discouraged students
from pursuing chip-related degrees, contracting the domestic talent pipeline. Our conceptual
framework shows that high proportions of foreign workers and inelastic labor
supply in these occupations contribute to the adverse effects of protectionist policies.
Discussant: Sophie Shive, University of Notre Dame
Leonid Kogan, Massachusetts Institute of Technology
Peiyao Li, University of California-Berkeley
Dimitris Papanikolaou, Northwestern University
Abstract: We examine the link between a firm’s future performance and innovations made by other firms using text-based measures of innovation displacement—how relevant one firm’s innovations are to another’s operations. Our findings indicate that when other major innovators’ recent innovations are similar to the focal firm’s technologies, the focal firm’s profit growth over the next 7 years is expected to decline, with the association exacerbating annually, especially for non-innovative firms. This displacement effect persists across various firm types and model specifications. Moreover, firms exposed to higher displacement have higher risk-adjusted stock returns in the following year.
Discussant: Jan Bena, University of British Columbia
