Hostname: page-component-cc8bf7c57-8cnds Total loading time: 0 Render date: 2024-12-10T11:06:14.618Z Has data issue: false hasContentIssue false
  • English
  • Français

The Real Effect of Smoking Bans: Evidence from Corporate Innovation

Published online by Cambridge University Press:  17 December 2018

Huasheng Gao Open the ORCID record for Huasheng Gao [Opens in a new window] ,
Po-Hsuan Hsu Open the ORCID record for Po-Hsuan Hsu [Opens in a new window] ,
Kai Li Open the ORCID record for Kai Li [Opens in a new window]  and
Jin Zhang
Get access Rights & Permissions [Opens in a new window]

Abstract

We identify a positive causal effect of healthy working environments on corporate innovation, using the staggered passage of U.S. state-level laws that ban smoking in workplaces. We find a significant increase in patents and patent citations for firms headquartered in states that have adopted such laws relative to firms headquartered in states without such laws. The increase is more pronounced for firms in states with stronger enforcement of such laws and in states with weaker preexisting tobacco controls. We present suggestive evidence that smoke-free laws affect innovation by improving inventor health and productivity and by attracting more productive inventors.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 55 , Issue 2 , March 2020 , pp. 387 - 427
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

1

We are grateful for helpful comments from an anonymous referee, Renee Adams, Neal Ashkanasy, Patrick Bolton, James Brugler, Hui Chen, David Feldman, Tim Folta, Neil Galpin, Alfonso Gambardella, Brad Greenwood, Bruce Grundy, David Hsu, Xu Huang, Gur Huberman, Chuan Yang Hwang, Boyan Jovanovic, Dan Li, Feng Li, Chen Lin, TC Lin, William Mann, Nadia Massoud, Ron Masulis, Yifei Mao, Ivan Png, David Reeb, Ravi Sastry, Robert Seamans, Thomas Schmid, Wes Sine, Avanidhar Subrahmanyam, Peter Swan, Lewis Tam, Wing Wah Tham, Xuan Tian, Sheridan Titman, Cameron Truong, John Van Reenen, Sid Vedula, Betty Wu, Ting Xu, Hong Yan, Bohui Zhang, Joe Zou, seminar participants at Hong Kong Baptist University, Monash University, Nanyang Technological University, Shanghai Advanced Institute of Finance, University of Glasgow, University of Hong Kong, University of Melbourne, and University of New South Wales, and conference participants at the Darden and Cambridge Judge Entrepreneurship and Innovation Research Conference, the Asian Development Bank Institute (ADBI) Finance and Innovation Conference, the Financial Management Association (FMA) Asia Pacific Conference, and the China International Conference in Finance. We thank Yen-Teik Lee for research assistance. Gao acknowledges financial support from Shanghai Pujiang Program. Hsu acknowledges financial support from Ministry of Education and Ministry of Science and Technology in Taiwan (MOE Grant No. 108L900202 and MOST Grant No. 108-3017-F-002-003). Li acknowledges financial support from the Social Sciences and Humanities Research Council of Canada (SSHRC Grant No. 435-2013-0023). All errors are our own.

References

Acharya, V. V.; Baghai, R. P.; and Subramanian, K. V.. “Wrongful Discharge Laws and Innovation.” Review of Financial Studies, 27 (2014), 301–346.Google Scholar
Aghion, P.; Bloom, N.; Blundell, R.; Griffith, R.; and Howitt, P.. “Competition and Innovation: An Inverted-U Relationship.” Quarterly Journal of Economics, 120 (2005), 701–728.Google Scholar
Aghion, P.; Van Reenen, J.; and Zingales, L.. “Innovation and Institutional Ownership.” American Economic Review, 103 (2013), 277–304.Google Scholar
Atanassov, J.“Do Hostile Takeovers Stifle Innovation? Evidence from Antitakeover Legislation and Corporate Patenting.” Journal of Finance, 68 (2013), 1097–1131.Google Scholar
Autor, D. H.; Donohue, J. J. III; and Schwab, S. J.. “The Costs of Wrongful-Discharge Laws.” Review of Economics and Statistics, 88 (2006), 211–231.Google Scholar
Autor, D. H., and Dorn, D.. “The Growth of Low-Skill Service Jobs and the Polarization of the US Labor Market.” American Economic Review, 103 (2013), 1553–1597.Google Scholar
Bartecchi, C.; Alsever, R. N.; Nevin-Woods, C.; Thomas, W. M.; Estacio, R. O.; Bartelson, B. B.; and Krantz, M. J.. “Reduction in the Incidence of Acute Myocardial Infarction Associated with a Citywide Smoking Ordinance.” Circulation, 114 (2006), 1490–1496.Google Scholar
Beal, D. J.; Weiss, H. M.; Barros, E.; and MacDermid, S. M.. “An Episodic Process Model of Affective Influences on Performance.” Journal of Applied Psychology, 90 (2005), 1054–1068.Google Scholar
Bertrand, M.; Duflo, E.; and Mullainathan, S.. “How Much Should We Trust Differences-in-Differences Estimates?” Quarterly Journal of Economics, 119 (2004), 249–275.Google Scholar
Bertrand, M., and Mullainathan, S.. “Enjoying the Quiet Life? Corporate Governance and Managerial Preferences.” Journal of Political Economy, 111 (2003), 1043–1075.Google Scholar
Bloom, N.; Schankerman, M.; and Van Reenen, J.. “Identifying Technology Spillovers and Product Market Rivalry.” Econometrica, 81 (2013), 1347–1393.Google Scholar
Borghans, L.; Duckworth, A. L.; Heckman, J. J.; and ter Weel, B.. “The Economics and Psychology of Personality Traits.” Journal of Human Resources, 43 (2008), 972–1059.Google Scholar
Bunn, W. B. III; Stave, G. M.; Downs, K. E.; Alvir, J. M. J.; and Dirani, R.. “Effect of Smoking Status on Productivity Loss.” Journal of Occupational and Environmental Medicine, 48 (2006), 1099–1108.Google Scholar
Claessens, S., and Laeven, L.. “Financial Development, Property Rights, and Growth.” Journal of Finance, 58 (2003), 2401–2436.Google Scholar
Cohen, L.; Diether, K.; and Malloy, C.. “Misvaluing Innovation.” Review of Financial Studies, 26 (2013), 635–666.Google Scholar
Fama, E. F., and French, K. R.. “Industry Costs of Equity.” Journal of Financial Economics, 43 (1997), 153–193.Google Scholar
Galanis, D. J.; Petrovitch, H.; Launer, L. J.; Harris, T. B.; Foley, D. J.; and White, L. R.. “Smoking History in Middle Age and Subsequent Cognitive Performance in Elderly Japanese-American Men: The Honolulu-Asia Aging Study.” American Journal of Epidemiology, 145 (1997), 507–515.Google Scholar
Gao, H.; Hsu, P.-H.; and Li, K.. “Innovation Strategy of Private Firms.” Journal of Financial and Quantitative Analysis, 53 (2018), 1–32.Google Scholar
Gao, H., and Zhang, W.. “Employment Nondiscrimination Acts and Corporate Innovation.” Management Science, 63 (2017), 2982–2999.Google Scholar
Griliches, Z.“Patent Statistics as Economic Indicators: A Survey.” Journal of Economic Literature, 28 (1990), 1661–1707.Google Scholar
Hall, B. H.; Jaffe, A. B.; and Trajtenberg, M.. “The NBER Patent Citation Data File: Lessons, Insights and Methodological Tools.” Working Paper, National Bureau of Economic Research (2001).Google Scholar
Hall, B. H.; Jaffe, A. B.; and Trajtenberg, M.. “Market Value and Patent Citations.” RAND Journal of Economics, 36 (2005), 16–38.Google Scholar
Hall, B. H., and Lerner, J.. “The Financing of R&D and Innovation.” In Handbook of the Economics of Innovation, Hall, B. H. and Rosenberg, N., eds. Amsterdam, Netherlands: Elsevier-North Holland (2010), 609–639.Google Scholar
Halpern, M. T.; Shikiar, R.; Rentz, A. M.; and Khan, Z. M.. “Impact of Smoking Status on Workplace Absenteeism and Productivity.” Tobacco Control, 10 (2001), 233–238.Google Scholar
Heider, F., and Ljungqvist, A.. “As Certain as Debt and Taxes: Estimating the Tax Sensitivity of Leverage from State Tax Changes.” Journal of Financial Economics, 118 (2015), 684–712.Google Scholar
Heishman, S. J.; Taylor, R. C.; and Henningfield, J. E.. “Nicotine and Smoking: A Review of Effects on Human Performance.” Experimental and Clinical Psychopharmacology, 2 (1994), 345–395.Google Scholar
Hill, R. D.“Residual Effects of Cigarette Smoking on Cognitive Performance in Normal Aging.” Psychology and Aging, 4 (1989), 251–254.Google Scholar
Hirshleifer, D.; Hsu, P.-H.; and Li, D.. “Innovative Efficiency and Stock Returns.” Journal of Financial Economics, 107 (2013), 632–654.Google Scholar
Hsieh, C.-R.; Yen, L.-L.; Liu, J.-T.; and Lin, C. J.. “Smoking, Health Knowledge, and Anti-Smoking Campaigns: An Empirical Study in Taiwan.” Journal of Health Economics, 15 (1996), 87–104.Google Scholar
Hsu, P.-H.; Tian, X.; and Xu, Y.. “Financial Development and Innovation: Cross-Country Evidence.” Journal of Financial Economics, 112 (2014), 116–135.Google Scholar
Imbens, G., and Wooldridge, J. M.. “Recent Developments in the Econometrics of Program Evaluation.” Journal of Economic Literature, 47 (2009), 5–86.Google Scholar
Isen, A. M.; Daubman, K. A.; and Nowicki, G. P.. “Positive Affect Facilitates Creative Problem Solving.” Journal of Personality and Social Psychology, 51 (1987), 1122–1131.Google Scholar
Jacobson, P. D.; Wasserman, J.; and Raube, K.. “The Politics of Antismoking Legislation.” Journal of Health Politics, Policy and Law, 18 (1993), 789–819.Google Scholar
Javitz, H.; Zbikowski, S.; Swan, G.; and Jack, L.. “Financial Burden of Tobacco Use: An Employer’s Perspective.” Clinics in Occupational and Environmental Medicine, 5 (2006), 9–29.Google Scholar
Juster, H. R.; Loomis, B. R.; Hinman, T. M.; Farrelly, M. C.; Hyland, A.; Bauer, U. E.; and Birkhead, G. S.. “Declines in Hospital Admissions for Acute Myocardial Infarction in New York State after Implementation of a Comprehensive Smoking Ban.” American Journal of Public Health, 97 (2007), 2035–2039.Google Scholar
Kalmijn, S.; van Boxtel, M. P. J.; Verschuren, M. W. M.; Jolles, J.; and Launer, L. J.. “Cigarette Smoking and Alcohol Consumption in Relation to Cognitive Performance in Middle Age.” American Journal of Epidemiology, 156 (2002), 936–944.Google Scholar
Kogan, L.; Papanikolaou, D.; Seru, A.; and Stoffman, N.. “Technological Innovation, Resource Allocation and Growth.” Quarterly Journal of Economics, 132 (2017), 665–712.Google Scholar
Kugler, A., and Saint-Paul, G.. “How Do Firing Costs Affect Worker Flows in a World with Adverse Selection?” Journal of Labor Economics, 22 (2004), 553–584.Google Scholar
Lerner, J.“The Importance of Patent Scope: An Empirical Analysis.” RAND Journal of Economics, 25 (1994), 319–333.Google Scholar
Lerner, J., and Seru, A.. “The Use and Misuse of Patent Data: Issues for Corporate Finance and Beyond.” Working Paper, Harvard University (2015).Google Scholar
Levin, E. D.; McClernon, F. J.; and Rezvani, A. H.. “Nicotinic Effects on Cognitive Function: Behavioral Characterization, Pharmacological Specification, and Anatomic Localization.” Psychopharmacology, 184 (2006), 523–539.Google Scholar
Levine, R., and Rubinstein, Y.. “Smart and Illicit: Who Becomes an Entrepreneur and Do They Earn More?” Quarterly Journal of Economics, 132 (2017), 963–1018.Google Scholar
Longstreth, W. T. Jr.; Arnold, A. M.; Beauchamp, N. J. Jr.; Manolio, T. A.; Lefkowitz, D.; Jungreis, C.; Hirsch, C. H.; O’Leary, D. H.; and Furberg, C. D.. “Incidence, Manifestations, and Predictors of Worsening White Matter on Serial Cranial Magnetic Resonance Imaging in the Elderly: The Cardiovascular Health Study.” Stroke, 36 (2005), 56–61.Google Scholar
Longstreth, W. T. Jr.; Diehr, P.; Manolio, T. A.; Beauchamp, N. J.; Jungreis, C. A.; and Lefkowitz, D.. “Cluster Analysis and Patterns of Findings on Cranial Magnetic Resonance Imaging of the Elderly: The Cardiovascular Health Study.” Archives of Neurology, 58 (2001), 635–640.Google Scholar
Ott, A.; Andersen, K.; Dewey, M. E.; Letenneur, L.; Brayne, C.; Copeland, J. R. M.; Dartigues, J.-F.; Kragh-Sorensen, P.; Lobo, A.; Martinez-Lage, J. M.; Stijnen, T.; Hofman, A.; and Launer, L. J.. “Effect of Smoking on Global Cognitive Function in Nondemented Elderly.” Neurology, 62 (2004), 920–924.Google Scholar
Pfizer. “Pfizer Facts: Smoking in the United States Workforce.” Pfizer Inc.,  available  at https://www.pfizer.com/sites/default/files/products/Smoking_in_the_US_Workforce.pdf(2007).Google Scholar
Piper, M. E.; Kenford, S.; Fiore, M. C.; and Baker, T. B.. “Smoking Cessation and Quality of Life: Changes in Life Satisfaction Over 3 Years Following a Quit Attempt.” Annals of Behavioral Medicine, 43 (2012), 262–270.Google Scholar
Raddatz, C.“Liquidity Needs and Vulnerability to Financial Underdevelopment.” Journal of Financial Economics, 80 (2006), 677–722.Google Scholar
Roberts, M., and Whited, T.. “Endogeneity in Empirical Corporate Finance.” In Handbook of the Economics of Finance, Vol. 2, Constantinides, G., Harris, M., and Stulz, R., eds. Amsterdam, Netherlands: Elsevier (2013), 493–572.Google Scholar
Romer, P. M.“Endogenous Technological Change.” Journal of Political Economy, 98 (1990), S71–S102.Google Scholar
Sargent, R. P.; Shepard, R. M.; and Glantz, S. A.. “Reduced Incidence of Admissions for Myocardial Infarction Associated with Public Smoking Ban: Before and After Study.” British Medical Journal, 328 (2004), 977–980.Google Scholar
Scherer, F. M.“Corporate Inventive Output, Profits, and Growth.” Journal of Political Economy, 73 (1965), 290–297.Google Scholar
Schoar, A.“Effects of Corporate Diversification on Productivity.” Journal of Finance, 57 (2002), 2379–2403.Google Scholar
Schweizer, T. S.“The Psychology of Novelty-Seeking, Creativity and Innovation: Neurocognitive Aspects within a Work-Psychological Perspective.” Creativity and Innovation Management, 15 (2006), 164–172.Google Scholar
Seo, M.-G.; Barrett, L. F.; and Bartunek, J. M.. “The Role of Affective Experience in Work Motivation.” Academy of Management Review, 29 (2004), 423–439.Google Scholar
Singh, J., and Fleming, L.. “Lone Inventors as Sources of Breakthroughs: Myth or Reality?” Management Science, 56 (2010), 41–56.Google Scholar
Solow, R.“Technical Change and the Aggregate Production Function.” Review of Economics and Statistics, 39 (1957), 312–320.Google Scholar
Stark, O., and Bloom, D. E.. “The New Economics of Labor Migration.” American Economic Review, 75 (1985), 173–178.Google Scholar
Starr, J. M.; Deary, I. J.; Fox, H. C.; and Whalley, L. J.. “Smoking and Cognitive Change from Age 11 to 66 Years: A Confirmatory Investigation.” Addictive Behaviors, 32 (2007), 63–68.Google Scholar
Staw, B. M.; Sandelands, L. E.; and Dutton, J. E.. “Threat Rigidity Effects in Organizational Behavior: A Multilevel Analysis.” Administrative Science Quarterly, 26 (1981), 501–524.Google Scholar
Swan, G. E.; DeCarli, C.; Miller, B. L.; Reed, T.; Wolf, P. A.; and Carmelli, D.. “Biobehavioral Characteristics of Nondemented Older Adults with Subclinical Brain Atrophy.” Neurology, 54 (2000), 2108–2114.Google Scholar
Swan, G. E., and Lessov-Schlaggar, C. N.. “The Effects of Tobacco Smoke and Nicotine on Cognition and the Brain.” Neuropsychology Review, 17 (2007), 259–273.Google Scholar
Trajtenberg, M.; Henderson, R.; and Jaffe, A.. “University versus Corporate Patents: A Window on the Basicness of Invention.” Economics of Innovation and New Technology, 5 (1997), 19–50.Google Scholar
U.S. Department of Health and Human Services. “The Health Consequences of Involuntary Exposure to Tobacco Smoke” Surgeon General’s Report, Centers for Disease Control and Prevention (2006).Google Scholar
U.S. Department of Health and Human Services. “The Health Consequences of Smoking—50 Years of Progress.” Surgeon General’s Report, Centers for Disease Control and Prevention (2014).Google Scholar
Weng, S. F.; Ali, S.; and Leonardi-Bee, J.. “Smoking and Absence from Work: Systematic Review and Meta-Analysis of Occupational Studies.” Addiction, 108 (2013), 307–319.Google Scholar
World Health Organization. “Protection from Exposure to Second-Hand Tobacco Smoke: Policy Recommendations.” Policy Recommendations, World Health Organization (2007).Google Scholar