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ItemFree Speech, the Right to Petition, and Corporate Innovation( 2022)Using the passage of state-level anti-SLAPP (strategic lawsuits against public participation) legislation as a plausible shock to free speech and the right to petition, we hypothesize and find that corporate innovation success increases following the passage of state anti-SLAPP laws. Our results suggest that the increase occurs through two channels: (i) a reduction in information asymmetry between the firm and outside investors on innovation investments and (ii) a reallocation of external capital to firms with higher growth prospects. Consistent with an informational channel, we find the increase is stronger for firms with an ex-ante lower quality information environment. Consistent with an external capital channel, our results also support the theory that outside capital providers are better able to distinguish between superior and inferior innovators in allocating their capital after the enactment of anti-SLAPP laws in a state. Our results hold under a battery of robustness tests. Overall, our results do not support the alternative view that firms use SLAPP lawsuits to stifle the release of public information contrary to their interests (e.g., proprietary information on trade secrets). Our study contributes to the accounting, law, and economics literatures by documenting a potentially unintended economic consequence for corporate innovation of state-level anti-SLAPP legislation.
ItemEvery Cloud Has a Silver Lining: Analysis of Negative Book Value Firms( 2022)Negative book value firms have become more prevalent in recent years, ranging from 0.41% of all Compustat firms in 1961 to 12.47% in 2016 with highest representations in the healthcare, telecommunication, and computer electronic industries. To examine why these negative book value firms are not liquidated, we investigate firms’ 1) current accounting practices, 2) future investment opportunities, and 3) narrative investment disclosures. We first document that negative book value firms adopting a more conservative accounting practice in the current period are less likely to be liquidated. Next, we find that the liquidation likelihood is lower for negative book value firms with higher levels of future intangible investments. Furthermore, we employ a machine-learning-based latent Dirichlet allocation (LDA) approach to measure investment-oriented firm disclosures and find a lower liquidation likelihood for negative book value firms disclosing more future investment narratives. Our evidence is robust to including reorganization firms and extending the length of the liquidation window. Overall, our study sheds light on why negative book value firms are not liquidated by providing evidence on firms’ current accounting practices and future investment opportunities.