Does Going Public Affect Innovation

asmeasuredbynumberofpatents.Inthatcase,theadditionoflow-qualityinnovationprojectsmaygeneratetheresultsratherthanarepositioningofresearchtolower-impacttopics.TheanalysisinTableVIIIaddressesthisquestionbyexploringchangesinthescaleofinnovation.15

[INSERTTABLEVIII]

Theendogenousmodelincolumn(1)indicatesthatIPO?rmsproducesigni?cantly

Accepted ArticlemorepatentsperyearfollowingtheIPO?ling,witha37.75%increaserelativetothepre-IPOaverage.Column(2),however,indicatesthattheabovee?ectisinsigni?cantwhenthereduced-formspeci?cationisestimated.The2SLSestimateincolumn(3)showsthatthecoe?cientontheIPOvariableisinsigni?cantandthemagnitudedeclinesto28.17%.Infact,whenusingtheIVPoissonspeci?cationincolumn(4),thecoe?cientontheIPOvariableisclosetozeroandinsigni?cant.

A.3.

RobustnessChecksandInterpretation

InthissectionIsummarizeseveralsupplementalanalysesthattesttherobustnessand

interpretationoftheabove?ndings.IstartbyexploringwhetherthedeclineintheaverageinnovationqualityofIPO?rmscanbedrivenbyalowerpatentingthresholdaftertheIPO.Thismayleadtotheadditionoflow-qualitypatentsandhenceloweraveragepatentingquality.Todoso,Iexamine?rms’best(i.e.,most-cited)patent,whichisunlikelytobea?ectedbytheadditionoflow-qualitypatent?lings.I?ndthatthequalityofIPO?rms’bestpatentdeclinesaswell,withacomparablemagnitudeasthedeclineinaverageinnovationqualityreportedinTableVI.Thisevidence,whichisreportedintheInternetAppendix,suggeststhatgoingpublica?ectstheentirepatentdistributionratherthansimplydrivingaverageperformancedownbytheadditionoflow-qualityprojects.16

Next,cash-rich?rmsmaybeassociatedwithfewercitationsbecauseciting?rmsfacehigherlitigationrisk,whichwouldmechanicallygeneratetheresultsinthepaper.Totest

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thisconcern,IfocusonpatentsapprovedbeforetheIPO?lingandexaminewhetherpatents’annualcitationratechangesafterthe?rmsgopublic(relativeto?rmsthatwithdrawthe?ling).InresultsreportedintheInternetAppendix,I?ndthatchangesinthecitationrateofexistinginventionscannotbeexplainedbythetransitiontopublicequitymarkets.IalsoexplorewhethertheresultsaredrivenbytheInternetbubbleyears.Asillustrated

Accepted ArticleinTableIV,theinstrumentstronglypredictsIPOcompletionevenwhenall?rmsthat?ledduringtheInternetbubbleandthereafterareexcluded.InrobustnesstestsIreestimatetheinnovationnoveltyregressionsafterexcludingall?rmsthat?letogopublicasof1999.Theresults,reportedintheInternetAppendix,remainsigni?cantandqualitativelyunchanged.Inthemainanalysis,Icollectinformationontheinnovationtrajectoryof?rmsinthe?ve

yearssubsequenttotheIPO?ling.Ininterpretingtheresults,itisnaturaltowonderhowtheendogenoustransitionof18%ofthewithdrawn?rmstopublicequitymarketsa?ectstheestimates.Toexaminethisquestion,Irepeattheinstrumentalvariablesanalysisusinganendogenousvariablethatequalsoneifa?rmgoespublicinthetwo(orthree)yearsaftertheIPO?ling,regardlessofwhetheritwithdrawsinthe?rstattempt.Thus,ifa?rmwithdrawsits?lingandreturnstotheIPOmarketinthe?rsttwo(three)yearsafterthe?ling,this?rmwouldbeconsideredpartofthetreatmentgroup(andnotthecontrolgroup).17As

reportedintheInternetAppendix,thesespeci?cationsgenerateestimatesthataresimilartothosereportedabove.

Finally,itisimportanttounderstandwhethertheestimatesaredrivenbychangesin

?rmsthatwithdrawtheirIPO?lingandremainprivateorby?rmsthatgopublic.Forexample,withdrawn?rmsmaychoosetoincreasetheirinnovationinordertosuccessfullygopublicinasecondattempt,ratherthanIPO?rmsexperienceadeclineininnovation.However,I?ndthatallIPO?lersexperienceadeclineinscaledinnovationmeasures,both?rmsthatexperienceaNASDAQdrop(andthusaremorelikelytoremainprivate)and?rmsthatdonotexperienceaNASDAQdrop.18However,thedeclineismoresubstantialamong?rmsthatendupgoingpublic.Similarly,changesintheacquisitionofexternalinnovation,

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asdiscussedinSectionIII.C,aredrivenbythose?rmsthatgopublicratherthanthosethatremainprivate.19

Accepted ArticleB.InventorMobilityandProductivityChanges

AsubstantialportionofR&Dinvestmentisintheformofwagesforhighlyeducated

scientistsandengineers,whoencompassthe?rm’sknowledge.ItisthereforenaturaltoexplorewhethergoingpublicleadstoinventormobilityandproductivitychangesfollowingtheIPO.

B.1.InventorLevelData

Thepatentdatabaseprovidesaninterestingopportunitytotrackinventors’mobility

across?rms,aseachpatentapplicationincludesboththenameoftheinventoranditsassignee(mostoftentheinventor’semployer).Analysisofinventor-leveldata,however,ischallengingforseveralreasons.First,patentsareassociatedwithinventorsbasedontheirnameandgeographiclocation,butinventors’namesareunreliableas?rstnamescanbeabbreviatedanddi?erentinventorsmayhavesimilarorevenidenticalnames.Second,whileitispossibletoinferthataninventorchanged?rms(forexample,aninventorisassociatedwithapatentforcompanyAin1987andapatentforcompanyBin1989),theprecisedateoftherelocationisunavailable.Additionally,transitionsforwhichinventorsdonotproducepatentsinthenewlocationarenotobservable.Hence,thismethodidenti?esrelocationsofthemorecreativeinventorswhopatentfrequentlyandpresumablymatterthemost.Toovercomethehurdleofnamematching,IusetheHBSpatentingdatabase,whichin-

cludesuniqueinventoridenti?ers.Theuniqueidenti?ersarebasedonre?neddisambiguationalgorithmsthatseparatesimilarinventorsbasedonvariouscharacteristics(Lai,D’Amour,andFleming(2009)).Whenpatentapplicationsincludemultipleinventors,Iattributeapatentequallytoeachinventor.Overall,Iobtaininformationonapproximately36,000in-ventorsinmysample.Irestricttheanalysistoinventorsthatproduceatleastasinglepatent

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bothbeforeandaftertheIPO?lingandexaminethepatentingbehaviorofinventorsinthethreeyearsbeforeand?veyearsaftertheIPO?ling.Iidentifythreeinventortypes:1.Stayer–AninventorwithatleastasinglepatentbeforeandaftertheIPO?lingatthesamesample?rm.

2.Leaver–Aninventorwithatleastasinglepatentatasample?rmbeforetheIPO?ling,andatleastasinglepatentinadi?erentcompanyaftertheIPO?ling.20

3.Newcomer–AninventorwithatleastasinglepatentaftertheIPO?lingatasample?rm,butnopatentsbefore,andatleastasinglepatentatadi?erent?rmbeforetheIPO?ling.

Ofthe36,000inventorsinmysample,Icanclassify16,108inventorsintotheabove

Accepted Articlecategories.21Theseinventorsaccountforapproximately65%ofthesamplepatents.

B.2.

InventorLevelAnalysis

Iexplorechangesininventor-levelactivityusingtheinstrumentalvariablesapproach

introducedinSectionII.A.Istartbyinvestigatingchangesintheinnovationqualityofstayers.Next,Iexamineinventormobilitybystudyinginventors’likelihoodofleaving,spinningo?acompany,orjoiningthe?rmfollowingtheIPO?ling.

TheresultsarereportedinTableIX,wheretheunitofobservationisatthelevelofthe

inventor.Incolumn(1),Iexplorechangesinstayers’productivity.Ifocusonthesetofinventorsthatremainatthe?rm,andthedependentvariableistheaveragescaledcitationsproducedbyinventorsinthe?veyearsaftertheIPO?ling.Icontrolfortheinventor’spre-IPO?lingcitationsperpatent,aswellas?lingyearandindustry?xede?ectsandtheotherstandardcontrols.Standarderrorsareclusteredatthe?rmlevel,toallowforcorrelationsbetweeninventorsinthesame?rm.Iestimatethe2SLSincolumn(1),and?ndthattheIPOcoe?cientequals-1.094,whichisstatisticallysigni?cantatthe1%level.Themagnitudeislarge,correspondingtoa48Tclineininventors’innovationnoveltyinIPO?rmsrelativeto

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