Katarina Warg is a PhD candidate at the Department of Finance at Stockholm School of Economics.
She is on the academic job market and will be available for interviews at the European Job Market for Economists 2021 and the AEA/ASSA 2022 Virtual Meetings.
Job Market Paper: The Acquisition Option and Startup Innovations
Abstract: I study a novel channel affecting startup innovations: how acquisition and venture capital markets shape startups' innovation incentives. A startup's catering incentives increase as an exit through acquisition becomes relatively more attractive. My theoretical framework demonstrates that as the availability of venture capital increases, startups' catering incentives decrease. To provide evidence of this channel, I develop novel text-based measures suitable for measuring changes in the direction and complementarity of startups' innovations, thereby expanding the scope of innovation activity studied in prior literature. Startups innovate more in directions with high acquisition activity, and following an exogenous increase in local capital supply, startups introduce innovations that are more independent of potential acquirers' assets. Overall, my results suggest that the availability of external financing is key to understanding startup firms' innovation incentives and, ultimately, innovation output.