Innovation in corporate finance

This dissertation focuses on corporate innovation. The three essays explore different aspects of how corporations manage, motivate, and use their innovation. The first essay explores patent litigation as a competitive tool used either by large corporations with declining innovation capabilities or by corporations facing greater competition from innovative industry rivals. Results suggest that large firms are more likely to pursue patent litigation to deter competition from startups that tend to generate patents with more forward citations. The second essay focuses on a firm's decision to pursue innovation and lobbying to form competitive barriers. The essay finds that the largest firms produce most of the knowledge output within an economy as measured by firm-year forward citations. Similarly, lobbying is shown to be predominant among the largest firms. The essay further studies a specific type of innovation, Clean Technology, and how large corporations' success in clean technology development influences their decision to pursue lobbying activities. Overall, the findings suggest that firms' engagement in lobbying depends on the success of their innovation activities. This finding is consistent the protectionist role of lobbying when firms pursue lobbying to protect the status quo. Lastly, the third essay looks at how firms motivate innovation through the board of directors. The essay examines director equity compensation as a mechanism used to align the boards' incentives with the incentives of shareholders. Results support the incentives alignment mechanism, and they highlight the important role that the board of directors plays in the pursuit of corporate innovation