The Journal of Finance

Does Going Public Affect Innovation?

Published: 04/13/2015   |   DOI: 10.1111/jofi.12275

SHAI BERNSTEIN

This paper investigates the effects of going public on innovation by comparing the innovation activity of firms that go public with firms that withdraw their initial public offering (IPO) filing and remain private. NASDAQ fluctuations during the book‐building phase are used as an instrument for IPO completion. Using patent‐based metrics, I find that the quality of internal innovation declines following the IPO, and firms experience both an exodus of skilled inventors and a decline in the productivity of the remaining inventors. However, public firms attract new human capital and acquire external innovation. The analysis reveals that going public changes firms' strategies in pursuing innovation.

Asset Allocation in Bankruptcy

Published: 10/25/2018   |   DOI: 10.1111/jofi.12740

SHAI BERNSTEIN, EMANUELE COLONNELLI, BENJAMIN IVERSON

This paper investigates the consequences of liquidation and reorganization on the allocation and subsequent utilization of assets in bankruptcy. Using the random assignment of judges to bankruptcy cases as a natural experiment that forces some firms into liquidation, we find that the long‐run utilization of assets of liquidated firms is lower relative to assets of reorganized firms. These effects are concentrated in thin markets with few potential users and in areas with low access to finance. These findings suggest that when search frictions are large, liquidation can lead to inefficient allocation of assets in bankruptcy.

Attracting Early‐Stage Investors: Evidence from a Randomized Field Experiment

Published: 09/20/2016   |   DOI: 10.1111/jofi.12470

SHAI BERNSTEIN, ARTHUR KORTEWEG, KEVIN LAWS

This paper uses a randomized field experiment to identify which start‐up characteristics are most important to investors in early‐stage firms. The experiment randomizes investors’ information sets of fund‐raising start‐ups. The average investor responds strongly to information about the founding team, but not to firm traction or existing lead investors. We provide evidence that the team is not merely a signal of quality, and that investing based on team information is a rational strategy. Together, our results indicate that information about human assets is causally important for the funding of early‐stage firms and hence for entrepreneurial success.

Do Household Wealth Shocks Affect Productivity? Evidence from Innovative Workers During the Great Recession

Published: 09/24/2020   |   DOI: 10.1111/jofi.12976

SHAI BERNSTEIN, TIMOTHY MCQUADE, RICHARD R. TOWNSEND

We investigate how the deterioration of household balance sheets affects worker productivity, and in turn economic downturns. Specifically, we compare the output of innovative workers who experienced differential declines in housing wealth during the financial crisis but were employed at the same firm and lived in the same metropolitan area. We find that, following a negative wealth shock, innovative workers become less productive and generate lower economic value for their firms. The reduction in innovative output is not driven by workers switching to less innovative firms or positions. These effects are more pronounced among workers at greater risk of financial distress.

The Impact of Venture Capital Monitoring

Published: 10/13/2015   |   DOI: 10.1111/jofi.12370

SHAI BERNSTEIN, XAVIER GIROUD, RICHARD R. TOWNSEND

We show that venture capitalists' (VCs) on‐site involvement with their portfolio companies leads to an increase in both innovation and the likelihood of a successful exit. We rule out selection effects by exploiting an exogenous source of variation in VC involvement: the introduction of new airline routes that reduce VCs' travel times to their existing portfolio companies. We confirm the importance of this channel by conducting a large‐scale survey of VCs, of whom almost 90% indicate that direct flights increase their interaction with their portfolio companies and management, and help them better understand companies' activities.