Using patent examiners' leniency as an instrument, we conduct an instrumental variable analysis showing that firms with a larger number (and higher quality) of patents before initial public offerings (IPOs) incorporate a larger number of and stronger antitakeover provisions (ATPs) in their corporate charters at their IPOs. We examine two mechanisms through which pre-IPO patenting may affect the number and strength of ATPs in corporate charters: a management-entrenchment mechanism, in which ATPs merely entrench firm managers after an IPO, and a long-run-value-creation mechanism through which ATPs incentivize a firm's top managers to create long-run value by allowing them more time for development before they lose control to rival management teams. We present two pieces of evidence that suggest the long-run-value-creation mechanism dominates the entrenchment mechanism as an explanation for the relationship between pre-IPO patenting and ATPs for our sample firms with greater pre-IPO patenting.
We analyze the risk of mafia capture of firms operating in the legal economy. To overcome possible endogeneity concerns we exploit the abrupt drop in revenues caused by the COVID-19-related closures imposed in spring 2020 in Italy. We find that the induced sudden and significant worsening of affected firms' financial conditions increased the likelihood of them being infiltrated by mafia-connected entrepreneurs: A 10 percent drop in revenues leads to a 4.9 percent increase in the probability of mafia entry. We further show that firms are more likely to resort to mafia lending when they face temporary difficulties in repaying their debts.
