Is Acquisition FDI During a Economic Crisis Determinantal for Domestic Innovation? (with Maria Garcia-Vega and Apoorva Gupta)
This paper examines how acquisition-FDI during a financial crisis, or fire-sale FDI, affects the R&D investments of target firms. We compare these effects with acquisitions that occur during periods of strong economic growth. Using a panel of Spanish firms from 2004 to 2014, we find that irrespective of when in the business cycle the acquisition occurs, the best domestic firms are cherry-picked by foreign multinationals. Using propensity score matching and difference-in-difference regressions, we find that firms acquired during crises experience smaller declines in domestic R&D than firms acquired during periods of robust growth. To explain why fire-sale FDI does not result in large declines in R&D in target firms, we rely on the macroeconomic literature on the opportunity cost of R&D over the business cycle. Consistent with this theory, we find that firms acquired during crises search for new markets and technologies by becoming more exploratory in their innovation than firms acquired during non-crisis periods.
Cloud Computing and Firm Growth (with Tim DeStefano and Jonathan Timmis) Conditionally Accepted Review of Economics and Statistics
The arrival of the cloud has enabled a shift in the nature of ICT use, from investment in sunk capital to a pay-on-demand service that allows firms to rapidly scale up. This paper uses new firm-level data to examine the impact of cloud on firm growth in the UK, using zipcode-level instruments of the timing of high-speed fibre availability and expected speeds. We find cloud leads to the growth of young firms in terms of employment and productivity, but they become more concentrated in fewer plants. For older firms we find no scale or productivity growth, but instead disperse activity by closing plants and moving employment further from the headquarters. In addition, the plants that close tend to be those without access to fibre broadband.
Capital incentives in the age of intangibles (with Tim DeStefano, Nick Johnstone and Jonathan Timmis)
New Version Coming Soon
Cloud computing presents a significant change in the way firms access digital technology and enables data-driven business models. Now, firms can acquire their storage, processing and software needs as a cloud computing service rather than making upfront fixed cost investments in capital. Yet, policies that encourage digital diffusion are still targeted towards investment in physical IT capital. This paper exploits a UK tax incentive for capital investment to examine firm adoption of cloud computing and big data analytics. Using a quasi-natural experimental approach our empirical results show that the policy increased investment in IT capital and hardware as one would expect; but it reduced the adoption of cloud and big data analytics. The adverse effects of the policy on cloud and big data adoption are particularly pronounced for small firms. from estimates constructed at both the micro and macro level.