Three Essays on Organizational Economics

Abstract

In the first essay, we build a model investigating how the nature of managerial human capital affects firms' choices of growth strategies. The model shows that when firms are cash constrained, managers with more general managerial skills are more likely to foster growth via acquisitions, which is further moderated by firms’ financial slack and agency concern. We find empirical evidence supporting the model predictions. Moreover, we use variation in enforceability of non-compete agreements in U.S. states as an instrument for general managerial skills and find a positive and causal impact of general managerial skills on growth via acquisitions.

In the second essay, we study whether it is optimal for a firm to engage in corporate social responsibility (CSR) when regulatory oversight was imperfect. The model suggests that a regulator who cannot perfectly monitor firm compliance may have to set inefficiently loose regulation. It then becomes optimal for the firm to hire a socially responsible worker who chooses to engage more in CSR. We test the model in two ways. Using the EU sample, we find that firms on average had lower CSR ratings after the introduction of the mandatory disclosure policy than the firms from 15 European countries that did not have a mandatory disclosure policy in place. Using US sample, we find that industries most hit by outsourcing and globalization are those that increase their CSR scores the most. Both sets of results support the predictions of the model.

In the third essay, we study how competition between two downstream firms affects an upstream innovator's innovation strategy, which includes selecting how much innovation to produce and whether to license this innovation to one (targeted licensing) or both (market-wide licensing) downstream competitors. Our model points to a U-shaped relationship between downstream competition and upstream innovation: at low levels of competition, market-wide licensing is the optimal and competition reduces innovation, while at high levels of competition targeted licensing is optimal and competition increases innovation. Empirical analysis using a large panel of U.S. data provides clear support for these predictions linking competition, innovation and licensing.