Do Powerful Politicians Cause Corporate Downsizing?

Lauren  Cohen; Joshua  Coval; Christopher J. Malloy

Article | Journal of Political Economy | December 2011

Do Powerful Politicians Cause Corporate Downsizing?

by Lauren Cohen, Joshua Coval and Christopher J. Malloy

Abstract

This paper employs a new empirical approach for identifying the impact of government spending on the private sector. Our key innovation is to use changes in congressional committee chairmanship as a source of exogenous variation in state-level federal expenditures. In doing so, we show that fiscal spending shocks appear to significantly dampen corporate sector investment and employment activity. This retrenchment follows both Senate and House committee chair changes, occurs in large and small firms and within large and small states, and is most pronounced among geographically concentrated firms. The effects are economically meaningful and the mechanism-entirely distinct from the more traditional interest rate and tax channels-suggests new considerations in assessing the impact of government spending on private sector economic activity.

Keywords: Spending; Private Sector; Taxation; Innovation and Invention; Interest Rates; Business and Government Relations; Investment; Employment; Power and Influence;

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Citation:

Cohen, Lauren, Joshua Coval, and Christopher J. Malloy. "Do Powerful Politicians Cause Corporate Downsizing?" Journal of Political Economy 119, no. 6 (December 2011): 1015–1060. (Click here for a response to Snyder and Welch, click here for the data, and click here for the code.)

Article | Management Science | December 2019

Patent Trolls: Evidence from Targeted Firms

Lauren Cohen, Umit Gurun and Scott Duke Kominers

We provide the first large-sample evidence on the behavior and impact of nonpracticing entities (NPEs) in the intellectual-property space. We find that, on average, NPEs appear to behave as opportunistic “patent trolls.” NPEs sue cash-rich firms and target cash in business segments unrelated to alleged infringement at essentially the same frequency as they target cash in segments related to alleged infringement. By contrast, cash is neither a key driver of intellectual-property lawsuits by practicing entities (e.g., IBM and Intel) nor of any other type of litigation against firms. We find further suggestive evidence of NPE opportunism: targeting of firms that have reduced ability to defend themselves, repeated assertions of lower-quality patents, increased assertion activity nearing patent expiration, and forum shopping. We find, moreover, that NPE litigation has a real negative impact on innovation at targeted firms: firms substantially reduce their innovative activity after settling with NPEs (or losing to them in court). Meanwhile, we neither find any markers of significant NPE pass-through to end innovators nor of a positive impact of NPEs on innovation in the industries in which they are most prevalent.

Keywords: Patent trolls; patents; innovation; Patents; Lawsuits and Litigation; Ethics; Innovation and Invention;

Citation:

Cohen, Lauren, Umit Gurun, and Scott Duke Kominers. "Patent Trolls: Evidence from Targeted Firms." Management Science 65, no. 12 (December 2019): 5461–5486. (Cited in the United States Federal Trade Commission Report on Patent Assertion Entities, 2016.) View Details

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We provide evidence that mutual fund managers misclassify their holdings and that these misclassifications have a real and significant impact on investor capital flows. In particular, we provide the first systematic study of bond funds’ reported asset profiles to Morningstar against their actual portfolios. Many funds report more investment grade assets than are actually held in their portfolios, making these funds appear significantly less risky. This results in pervasive misclassifications across the universe of U.S. fixed income mutual funds by Morningstar, who relies on these reported holdings. The problem is widespread—resulting in about 30% of funds being misclassified with safer profiles, when compared against their actual, publicly reported holdings. “Misclassified funds”—i.e., those that hold risky bonds but claim to hold safer bonds—outperform the actual low-risk funds in their peer groups. “Misclassified funds,” therefore, receive higher Morningstar Ratings (significantly more Morningstar Stars) and higher investor flows due to this perceived outperformance. However, when we correctly classify them based on their actual risk, these funds are mediocre performers. Misreporting is stronger following several quarters of large negative returns.

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Do Powerful Politicians Cause Corporate Downsizing?

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