Shai Bernstein

­ ­­ ­ Does Going Public Affect Innovation? JOB MARKET PAPER

Abstract: This paper investigates the effects of going public on innovation. Using a novel data set consisting of innovative firms that filed for an initial public offering (IPO), I compare the long-run innovation of firms that completed their filing and went public with that of firms that withdrew their filing and remained private. I use NASDAQ fluctuations during the book-building period as a source of exogenous variation that affects IPO completion but is unlikely to affect long-run innovation. Using this instrumental variables approach, I find that going public affects firms' strategies in pursuing innovation. The quality of internal innovation declines by 50 percent relative to firms that remained private, measured by standard patent-based metrics. The decline in innovation is driven by both an exodus of skilled inventors and a decline in productivity among remaining inventors. However, access to public equity markets allows firms to partially offset the decline in internally generated innovation by attracting new human capital and purchasing externally generated innovations through mergers and acquisitions. Managerial incentives seem to play an important role in explaining the results.  

The Investment Strategies of Sovereign Wealth Funds (with Josh Lerner and Antoinette Schoar), October 2011, submitted.

Abstract: Sovereign wealth funds have complex objective functions and governance structures where return maximization and strategic political considerations may conflict. SWFs with greater involvement of political leaders in fund management are more likely to support domestic firms and invest in segments and markets with higher P/E levels, especially in their domestic investments. But these investments see a subsequent reversal in P/E levels suggesting that the funds engage in poor market timing. The opposite patterns hold for funds that rely on external managers. Funds that have stated domestic development goals are more likely to invest at home, especially if politicians are involved.  

Private Equity and Industry Performance (with Josh Lerner, Morten Sorensen and Per Stromberg), October 2011, submitted.

Abstract: The growth of the private equity industry has spurred concerns about its potential impact on the economy more generally. This analysis looks across nations and industries to assess the impact of private equity on industry performance. Industries where PE funds have invested in the past five years have grown more quickly in terms of productivity and employment. There are few significant differences between industries with limited and high private equity activity. It is hard to find support for claims that economic activity in industries with private equity backing is more exposed to aggregate shocks. The results using lagged private equity investments suggest that the results are not driven by reverse causality. These patterns are not driven solely by common law nations such as the United Kingdom and United States, but also hold in Continental Europe.  

Published Papers

Contracting with Heterogeneous Externalities (with Eyal Winter)
American Economic Journal: Microeconomics, Forthcoming

Abstract: We model situations in which a principal offers a set of contracts to a group of agents to participate in a project (such as a social event or a commercial activity). Agents’ benefits from participation depend on the identity of other participating agents. We assume multilateral externalities and characterize the optimal contracting scheme. We show that the optimal contracts’ payoff relies on a ranking of the agents, which can be described as arising from a tournament among the agents (similar to ones carried out by sports associations). Rather than simply ranking agents according to a measure of popularity, the optimal contracting scheme makes use of a more refined two-way comparison between the agents. Using the structure of the optimal contracts we derive results on the principal’s revenue extraction and the role of the level of externalities’ asymmetry.  

Work in Progress

What do Firms do with Cash Windfalls? Evidence from Unexpectedly Successful IPOs (with Rick Townsend)  


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