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Local Gambling Preferences and Corporate Innovative Success Yangyang Chen, Monash University Edward J. Podolski , La Trobe University S . Ghon Rhee, University of Hawai’i Madhu Veeraraghavan , TA PAI Management Institute. This paper is about…. St. Peter’s Basilica. Steve Jobs

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Local Gambling Preferences and

Corporate Innovative Success

Yangyang Chen, Monash University

Edward J. Podolski, La Trobe University

S. Ghon Rhee, University of Hawai’i

Madhu Veeraraghavan , TA PAI Management Institute


This paper is about
This paper is about….

St. Peter’s Basilica

Steve Jobs

Apple Inc.




Characteristics of corporate innovations
Characteristics of Corporate Innovations

  • Large Payoff

  • High Probability of Failure



Top and bottom five states for r d expenditure
Top and Bottom Five States for R&D Expenditure

Top Five

New Mexico

Massachusetts

Maryland

Washington

Connecticut

Bottom Five

Wyoming

Louisiana

Nevada

Arkansas

Oklahoma


R d spending and state lotteries
R&D Spending and State Lotteries


Characteristics of gambling attitude
Characteristics of Gambling Attitude

  • Overstating Small Probability of Success

  • Understating High Probability of Failure

    In Contrast,

    Characteristics of Corporate Innovation

  • Large Payoff

  • High Probability of Failure


Our intuition is
Our Intuition is….

Corporations

  • Not detached from local environment

  • Take risk on innovation if local residents are prone to gambling


Are catholics more risk taking than protestants
Are Catholics more risk-taking than Protestants?

“The Higher the Catholics-to-Protestants (CP) Ratio, the Higher Gambling Attitude”

  • Kumar, Page, and Spalt (2011, JFE)

  • Stocks with lottery features

  • IPO underpricing

  • Shu, Sulaeman, and Yeung (2012, MS)

  • MFs: Higher return volatilities & Higher Turnover


Cp ratio across the united states
CP Ratio Across the United States

Source: Kumar, Page, and Spalt (JFE, 2011)





Major findings
Major Findings

  • Firms in high CP ratio region spend more on innovation and attain higher innovative output

  • Social gambling and/or Religion: More important drivers of innovative activities than CEO overconfidence

  • Impact of CEO overconfidence on Innovative industries …..Conditioned on Gambling Preferences or Religion


Data and study period
Data and Study Period

DATA Sources

  • NBER Patent Database: 2006 Patent and Citation Data

  • American Religious Data Archives:

    Religious adherence at county level

  • Compustat: Firm-Level Accounting information

  • CRSP: Stocks returns

  • S&P Execucomp Database: CEOs and compensation

  • I/B/E/S (Institutional Brokers’ Estimate System): Analysts coverage

  • Forbes: State economic and regulatory variables

  • US Census Bureau: County Demographic Data

    Study Period: January 1980-December 2006

    Final Sample: 34,097 firm-year observations




Social gambling preferences and corporate risk taking i
Social Gambling Preferences and Corporate Risk-Taking (I)

Firms located in areas where gambling is more socially accepted undertake more risky projects

Corporate Risk = f(CP Ratio and Controls)

Where,

Corporate Risk measured by

  • Return Volatility = Std Dev of Daily Returns over the fiscal year

  • Profit Volatility = Std Dev of firm profitability over subsequent 20 quarters








Effect of religion industry and overconfidence
Effect of Religion, Industry and Overconfidence


Thank You for

Your Attention


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