More Cash, Less Innovation: The Effect of the American Jobs Creation Act on Patent Value
We find evidence that firms can become less innovative following a sudden inflow of cash. Specifically, after the 2004 American Jobs Creation Act (AJCA), multinational firms that were able to repatriate cash to the U.S. as a result of the AJCA generate less valuable patents than similar firms that could not benefit from this Act. The effect is stronger among firms with weaker governance prior to the AJCA, is mainly driven by reduction in exploratory innovation, and only exists in U.S.-originated patents. Repatriating firms also experience less turnover in patent inventors and CEOs after the AJCA. These results appear to be consistent with the “quiet life” agency story.
Link to SSRN