Do financial derivatives enhance or impede innovation? We aim to answer this question by examining the relationship between equity options markets and standard measures of firm innovation. Our baseline results show that firms with more options trading activity generate more patents and patent citations per dollar of R&D invested. We then investigate how more active options markets affect firms' innovation strategy. Our results suggest that firms with greater trading activity pursue a more creative, diverse and risky innovation strategy. We discuss potential underlying mechanisms and show that options appear to mitigate managerial career concerns that would induce managers to take actions that boost short-term performance measures. Finally, using several econometric specifications that try to account for the potential endogeneity of options trading, we argue that the positive effect of options trading on firm innovation is causal.

This article investigates the effect of patent protection on the mobility of early-career employee-inventors. Using data on patent applications filed at the U.S. Patent and Trademark Office between 2001 and 2012 and examiner leniency as a source of exogenous variation in patent protection, we find that one additional patent granted decreases the likelihood of changing employers, on average, by 23%. This decrease is stronger when the employee has fewer coinventors, works outside the core of the firm, and produces more basic-research innovations. These findings are consistent with the idea that patents turn innovation-related skills into patent-holder-specific human capital. This paper was accepted by Ashish Arora, entrepreneurship and innovation.

In this paper, we suggest that staffing decisions in R&D alliances can reduce the inherent tension between value creation and value protection faced by participating firms. By considering

This paper investigates the effect of obtaining a patent on the mobility of employee inventors who are at the beginning of their careers. We suggest that patents make human capital more specific to the employer. As a result, we expect that patenting leads to lower levels of mobility. We draw on U.S. patent application data for the period 2001-2012 to analyze this issue. Using average examiner leniency as an exogenous source of variation in granted patents, we find that one additional patent granted decreases inventor mobility by approximately 25 percent. The estimated negative effect is nearly twice as large for discrete technologies (chemicals and pharmaceuticals) for which patent effectiveness is greater. The effect is also more pronounced in cases where the inventor's knowledge can be independently transferred (e.g., inventors with few co-authors) and for moves concerning technologically similar employers. The results have implications for the effect of patents on knowledge diffusion. ABSTRACTThis paper investigates the effect of obtaining a patent on the mobility of employee inventors who are at the beginning of their careers. We suggest that patents make human capital more specific to the employer. As a result, we expect that patenting leads to lower levels of mobility. We draw on U.S. patent application data for the period 2001-2012 to analyze this issue. Using average examiner leniency as an exogenous source of variation in granted patents, we find that one additional patent granted decreases inventor mobility by approximately 25 percent. The estimated negative effect is nearly twice as large for discrete technologies (chemicals and pharmaceuticals) for which patent effectiveness is greater. The effect is also more pronounced in cases where the inventor's knowledge can be independently transferred (e.g., inventors with few co-authors) and for moves concerning technologically similar employers. The results have implications for the effect of patents on knowledge diffusion.

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