When and why do entrepreneurial firms choose particular entry or exit strategies? Why do some go to market independently while others form joint ventures or merge with larger firms? What is the impact of these choices on their profitability, growth and competitiveness? In this study, researchers will compile information from a number of dispersed sources to examine these sorts of questions.
The design of the study emphasizes (i) entrepreneurial firms' current core technological competencies and the relation of these competencies to industry competitors', (ii) the relative importance of patents, secrecy, and complementary assets, and (iii) industry life cycle stages and capital availability. In addition to examining choices about entry structures, the research team will examine how entrepreneurial growth and profitability are related to these types of underlying conditions. In particular, they will examine the importance of research, and the development of that research, in determining the boundaries of the firm.
The study involves complilation of three different measures of innovative activity: patent activity, patent citations, and research and development expenditures. It also involves use of new measures of organizational relatedness. The resulting new and comprehensive data set will be available as a research resource for subsequent researchers. This data set will enable researchers to explore a number of questions related to innovative and commercial activities of small entrepreneurial firms and large incumbents, both public and private.
This research project is part of a broad effort to understand how entrepreneurial firms develop and grow over time. Fundamentally we ask: What drives the choice of firm organizational form by small firms and what is the role of firm financing in this choice? Which small firms sell out or merge with other firms and which firms grow to become publicly listed on stock exchanges? Previous research on these questions was limited to large publicly traded firms. To answer these questions, we have built an integrated database that has have business and productivity data from the Census Bureau on private and public with data from Compustat and patent data from the U.S. Patent and Trademark Office. The final database contains a combination of patent data that is linked to plant- and firm-level data at the Bureau of the Census, Department of Commerce. We will also link this data to joint venture and alliance data. These databases are exhaustive, covering both public and private firms. They data allow us to track the investment, productivity, technological activity and ownership changes of every plant in the U.S. over the last forty years. Specific databases include the NBER U.S. Patent Citations Data File supplemented with additional data from the U.S. Patent and Trademark Office, the VentureXpert database and databases from the Department of Commerce: including The Survey of Industrial Research and Development which contains R&D data and covers public and private firms over a broad range of industries and the Quarterly Financial Reports and Longitudinal Business Database which contains data for public and private firms in all industries. This linked data is available and housed at the Center for Economic Studies, Bureau of the Census. Researchers do have to go to a Center for Economic Studies research data center to access the data. Our research has advanced the knowledge about entrepreneurial firms and the merger and acquisition market in several broad ways. First, we establish that being publicly traded confers an advantage to firms. In our paper "Private and Public Merger Waves" (2013, forthcoming Journal of Finance) , we establish that publicly traded firms grow faster and engage in acquisitions much more than do private firms especially during boom times. This finding raises several additional fundamental questions that cannot be addressed with prior data on public large firms: If being publicly traded makes access to financing easier and helps firms grow, why don't all firms go public? What happens to those firms that remain private? We address these additional question by comparing public and private firms and showing that public firm transactions are impacted positively by their stock market valuations and liquidity. Public firm acquisitions realize higher gains in productivity, particularly when their transactions occur on-the-wave and when their firms’ stock is liquid and highly valued. Second, examining firm productivity from up to 10 to 25 years before firms are publicly listed, we establish that firms that are initially more productive are more likely to go public in order to access financing during boom times. These subsequent public firms then grow fast through acquisitions during times of credit availability and low default spreads. Less productive small firms sell out to larger firms or choose to remain private. Thus we establish that more productive firms take advantage of financing availability to grow and exploit investment opportunities ? it is not the reverse causality that firms use credit and financing availability to become more productive and larger. Third, in our recent paper, "R&D and the Incentives from Merger and Acquisition Activity," (2012. forthcoming Review of Financial Studies) we provide a model and empirical tests showing how an active acquisition market affects firm incentives to innovate and conduct R&D. Our model shows that small firms optimally may decide to innovate more when they can sell out to larger firms. Large firms may find it disadvantageous to engage in an 'R&D race' with small firms, as they can obtain access to innovation through acquisition. Our model and evidence show that the R&D responsiveness of firms increases with demand, competition and industry merger and acquisition activity. All of these effects are stronger for smaller firms than for larger firms. Fourth, our published paper "Post-Merger Restructuring and the Boundaries of the Firm" (2011, Journal of Financial Economics) establishes how firms redraw their boundaries after acquisitions using plant-level data. We find that there is extensive restructuring in a short period following mergers and full-firm acquisitions. Acquirers of full firms sell 27% and close 19% of the plants of target firms within three years of the acquisition. Acquirers with skill in running their peripheral divisions tend to retain more acquired plants. Retained plants increase in productivity whereas sold plants do not. These results suggest that acquirers restructure targets in ways that exploit their comparative advantage.
