How Innovating Firms Manage Knowledge Leakage: A Natural Experiment on the Threat of Worker Departure. Strategic Management Journal, Accepted & Published Online. 2022. Kang, H. & Lee, W.
Knowledge protection strategies are crucial to innovating firms facing the risk of knowledge leakage. We examine the threat of worker departure as a key mechanism through which firms choose between patents and secrecy. We exploit a 1998 California court decision that ruled out-of-state noncompetes were not enforceable in California, thereby creating a loophole limiting non-California firms in their enforcement of noncompetes against their workers. When facing a higher threat of worker departure, firms strategically increased patent filings, exchanging legal protection for public disclosure of the invention. These effects were magnified for large-sized firms and for those in complex and fast-growing industries. Further mechanism tests on the possession of trade secrets, inventor migration, saliency of the decision, and independent inventors support our theoretical account.
Non-competes, Business Dynamism, and Concentration: Evidence from a Florida Case Study. Journal of Economics & Management Strategy 29(3): 663-685. 2020. Kang, H. & Fleming, L.
Most research on non‐competes has focused on employees; here we study how non‐competes affect firm location choice, growth, and consequent regional concentration, using Florida's 1996 legislative change that eased restrictions on their enforcement. Difference‐in‐differences models show that following the change, establishments of large firms were more likely to enter Florida; they also created a greater proportion of jobs and increased their share of employment in the state. Entrepreneurs or establishments of small firms, in contrast, were less likely to enter Florida following the law change; they also created a smaller proportion of new jobs and decreased their share of employment. Consistent with these location and job creation dynamics, regional business concentration increased following the law change in Florida. Nationwide cross‐sections demonstrate consistent correlations between state‐level non‐compete enforcement and the location, employment, and concentration dynamics illustrated in Florida.
Blending Talents for Innovation: Team Composition for Cross-border R&D Collaboration Within Multinational Corporations. Journal of International Business Studies 51: 851-885. 2020. Seo, E., Kang, H., & Song, J.
Despite the upsurge in cross-border R&D collaboration within multinational corporations (MNCs), firms often fail to realize the full potential of cross-border R&D teams. We examine under what conditions geographic diversity might lead to higher or lower innovation performance by focusing on the moderating roles of team composition. We first demonstrate that the geographic diversity of an MNC’s research team has a curvilinear (inverted U-shaped) relationship with the team’s innovation performance. Building upon group learning theory, we further claim that this non-linear relationship is strengthened by the technical experience heterogeneity of researchers but weakened by repeated collaboration among researchers. Our analyses on the top 25 multinational pharmaceutical companies and their 59,998 patents registered from 1981 to 2012 provide strong support for our hypotheses. When geographic diversity is relatively low, teams with different levels of technical experience and more fresh collaborators improve performance by amplifying the benefits of sourcing diverse knowledge. With high geographic dispersion, on the other hand, minimal experience heterogeneity and more instances of past collaboration lead to better performance by facilitating the integration of diverse knowledge. The results shed light on the importance of technical and social relationships among researchers in sourcing and integrating location-specific knowledge and ultimately enhancing team performance.
Innovation and recurring shifts in industrial leadership: Three phases of change and persistence in the camera industry. Research Policy 46(2): 376-387. 2017. Kang, H. & Song, J.
This study examines factors underlying three phases of change or persistence in industrial leadership in the sector of interchangeable-lens cameras over the past century. During this period there were two major phases of leadership change, both associated with the emergence of innovations involving major discontinuities in the industry’s core technologies. First, Japan won market leadership from Germany in the mid-1960s after commercializing the single-lens reflex (SLR) camera that replaced the previously dominant German rangefinder camera. Second, in the late-2000s, Japanese latecomer firms and a Korean firm developed Mirrorless cameras, which allowed them to capture the majority of market share from the incumbent Japanese leaders. We also examine the long period (about 60 years) between these two phases of change, during which leading Japanese firms were able to sustain their market leadership despite the digital revolution from the 1980s to 1990s. This paper explores the factors influencing these contrasting experiences of change and persistence in industry leadership. The analysis integrates several aspects of sectoral innovation systems – i.e., windows of opportunity associated with technology, demand, and institution – as well as the strategies of incumbents and latecomer firms. The conclusions highlight the complex and diverse combinations and importance of the factors that help explain the patterns of shifts in leadership.
How Does Price Competition Affect Innovation? Evidence from US Antitrust Cases.
Revise and Resubmit (2nd round). 2021. Kang, H.
SSRNPDF (Paper)PDF (Appendix)Abstract +
This paper examines how price competition in the product market affects the intensity and breadth of innovation. I assemble a unique data set comprising all 461 prosecuted collusion cases in the United States from 1975 through 2016, where I match 1,818 collusive firms to firm-level data on innovation. Empirical results from a difference-in-differences methodology show a negative causal relationship between price competition and innovation. When collusion suppressed price competition, colluded firms increased patent filings by 20.5 percent and top-quality patents by 16 percent. A significant portion of these patents are attributable to fundamental innovation activities since innovation inputs—R&D investment and the number of unique patenting inventors—increased in tandem by 15.2 percent and 22.9 percent, respectively. Furthermore, firms broadened their scope of innovation by exploring new technological areas; the number of patented technology classes increased by 11.9 percent. When competition was restored by collusion breakup, the increased and broadened innovation activities reverted to their previous levels. The effects were greater for collusion that was stronger and in fast-growing industries. I shed light on market profitability and firm financial constraints as key economic mechanisms driving the trade-off between price competition and innovation growth.
Fast Friends: Understanding the Impact of Short-term Migration on Firms’ Invention Outcomes.
Revise and Resubmit (1st round). 2022. Kang, H. & Eklund, J.
Large firms generally undertake their research and development (R&D) activities through networks of laboratories located in multiple countries. Scholars have sought to understand how knowledge flows between these R&D centers through examining firms’ use of information technology, shared common routines, and long-term immigration of human capital. Less is known about whether short-term migration of scientists between R&D centers located in different countries can impact firms’ intra-organizational knowledge flows and resultant invention outcomes. However, firms often leverage short-term migration of employees, thus understanding how it can impact firms’ invention outcomes is important. We theoretically argue that short-term migration of employees to R&D centers in other countries can help to lower the communication costs associated with transferring tacit knowledge between different R&D centers. In turn, this will translate into firms creating a greater quantity of inventions that draw on a broader scope of knowledge. Further, we suggest that these benefits of reduced communication costs on firms’ invention outcomes will be magnified if the two R&D centers have an intermediate level of knowledge overlap and if their primary spoken languages differ. To empirically test these arguments, we take advantage of the creation of the visa-waiver program for up to 42 countries which increased their citizens’ ease of visiting the USA. We broadly find support for our theoretical arguments in the context of the pharmaceutical industry. Further, we find that both R&D centers (host and visitor) gain from short term migration with the magnitude being greater for centers with access to more resources.
How Does AI Improve Human Decision-Making? Evidence from the AI-Powered Go Program.
Under Review. 2022. Choi, S., Kim, N., Kim, J., & Kang, H.
How does AI improve human decision-making? Answering this question is challenging because it is difficult to assess the quality of each decision and to disentangle AI’s influence on decisions. We study professional Go games, which provide a unique opportunity to overcome such challenges. In 2016 an AI-powered Go program (APG) unexpectedly beat the best human player, surpassing the best human knowledge and skills accumulated over thousands of years. To investigate the impact of APGs, we compare human moves to AI’s superior solutions, before and after the initial public release of an APG. Our analysis of 750,990 moves in 25,033 games by 1,242 professional players reveals that APGs significantly improved the quality of the players’ moves as measured by the changes in winning probability with each move. We also show that the key mechanisms are reductions in the number of human errors and in the magnitude of the most critical mistake during the game. Interestingly, the improvement is most prominent in the early stage of a game when uncertainty is higher. Further, young players—who are more open to and better able to utilize APG—benefit more than senior players, suggesting generational inequality in AI adoption and utilization.
Stick or Twist: Agile Resource Allocation During Periods of Industry Change.
Under Review. 2022. Eklund, J. & Kang, H.
Strategy scholars have extensively studied how incumbent firms respond to industry shocks. One under-studied factor shaping how incumbents respond relates to how effectively they reallocate their resources to take advantage of opportunities emerging from a shock. Using an adjustment cost lens, we argue that firms with more fungible and decomposable resources are better able to take advantage of any opportunities emerging from a shock. Further, we argue that firms operating in less competitive markets will respond more effectively to the shock as they face lower adjustment costs. We find support for our arguments in the context of the US domestic airline industry following the significant impact of COVID-19 on passenger volumes, with some airlines better able to navigate the shift to freight transportation than others.
Should Firms Hold More Patents? A Randomized Control Trial on the Commercial Value of Patent Protection.
Working Paper. 2022. Thompson, N., Tucci, C., Kang, H. & Khairullina, A.
Globally, firms spend approximately $1.7 trillion on R&D, much of which is aimed at producing patentable innovations. But using patents to cut off competitors’ access to an innovation is expensive to get and to maintain, costing an average of $1-2 million for global protection. That expense is only worthwhile if the exclusivity generated by the patent provides enough commercial value for the firm, principally through higher sales or profitability in the product market. In practice, making decisions whether to get or maintain patents is difficult because firms often can’t quantify the commercial value of a patent, even after the fact, because they never observe the performance of an equivalent innovation that is unpatented. Academics have been similarly stymied in quantifying the commercial value of patents because of (1) strong selection into which innovations are patented, (2) the difficulty in connecting patent protection to specific products, and (3) the commercial sensitivity of product-level financial data.
This paper presents the first randomized control trial to evaluate the commercial value of maintaining patent protection. In collaboration with a large multinational company, patents covering products in the marketplace were either abandoned or maintained at random. We then traced the effects of patent protection on product-level commercial outcomes using confidential internal data. On the margin, products protected by patents generated 35% more revenue for the firm, primarily through higher unit sales. Maintaining these patents was highly cost effective, yielding $67 in additional benefits for each dollar spent. Insomuch as the patenting behavior of the firm in our study is representative, our results suggest that firms should be maintaining more patent protection on products.
The Close Relationship Between Management Practices and Corporate Culture.
Working paper. 2019. Sull, D., Kang, H., & Thompson, N.
A growing body of literature finds that a healthy corporate culture is associated with superior financial performance. A separate stream of research has found that a firm’s adoption of management “best practices” is correlated with higher efficiency and productivity. To date, the cultural and management practices literatures have proceeded in parallel, with few studies considering the relationship between an organization’s processes and its culture. This paper uses data from a carefully-designed survey of 370 organizations and nearly ten thousand managers to simultaneously measure corporate culture and management practices. Our key finding is that the quality of a company’s management practices and health of its corporate culture are highly correlated. This implies that studies which measure either culture or processes in isolation are likely to overstate their impact on performance. We also provide suggestive evidence that management practices may cause changes in corporate culture, or at least that this effect is stronger than the reverse.
Tradeoffs in Firm Culture? Nope, You Can Have It All.
Working paper. 2018. Sull, D., Kang, H., & Thompson, N.
A firm can exhibit many “good” cultural values, for example collaboration, integrity, or ambition. Influential theories of corporate culture claim that firms must choose which cultural values to foster because of inherent trade-offs between them. This paper tests this proposition using a new survey of managers (370 firms, averaging 27 respondents each). We find no evidence of trade-offs. To the contrary, we find that firms that score higher on one cultural value also tend to score higher on others. Our findings suggest that any inherent trade-offs are outweighed by the ability of good management practices to help a firm excel across many cultural values.
How Did the Terms of Protection Affect Patenting and Innovation Activities?
Work in progress (draft available upon request). 2019. Kang, H.