Three essays on innovation, corporate control and household consumption-based asset pricing

Abstract

Chapter I: Tracking more than 100 billion weekly transactions of two million products at the barcode level from 2007 to 2017, we identify and categorize new products as pioneers, followers and improvers to study corporate exploratory and/or exploitative innovation strategies. Firms introducing "pioneer" products are associated with greater future profitability and stock returns than those introducing "improver" and "follower" products. Price elasticity of demand explains pioneering (exploratory) innovation's operating success. Meanwhile, limited investor attention accounts for pioneering firms' superior stock performance. We exploit two exogenous shocks to firms' new product development decisions to address endogeneity concerns. Chapter II: This paper explores the long-run consequences of concentrating super-voting shares within family trusts. Dual-class shares are widely regarded as entrenching ownership structures that provide total control for top managers and engender excessive agency costs. In contrast, family-owned firms are often praised for instilling a long-run vision that limits self-dealing. In our data, 75% of family firms employ a dual-class ownership structure and 46% of these companies do so by holding these shares within a trust. We find that enhanced voting control through family trusts leads to larger investments into research and development and greater patent output. This patent production is perceived as more valuable by the market. Traditional investment is similarly perceived as more valuable. Firms controlled by trusts are more profitable and earn higher stock-returns. Super-voting shares held by family members outside of this structure have no effect and dual-class shares held by non-family investors lead to worse outcomes. These results reverse in a natural experiment that leverages the staggered adoption of state laws that weaken the control authority of family trusts. Chapter III: We propose a novel consumption measure that has a daily frequency and is based on real time shopping data. Our measure explains the joint equity-premium-risk-free rate puzzle with a risk aversion coefficient much lower than any other consumption measures. It explains the cross-sectional variation of expected returns on various portfolios and is the only consumption measure that passes Kleibergen and Zhan (Journal of Finance, 2020) robust tests. Our model decomposes consumption shocks into different frequencies of volatility and shows that ignoring short-term dynamics and intra-annual fluctuations explains the much higher risk aversion from low-frequency consumption measures. At zip-code level daily consumption, (a) consumption in blue areas suggests higher risk aversion than that in red areas; (b) only Democratic consumption beta explains a variation of cross-sectional returns, and is more sensitive to overall industry perfor