1. 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

2. This paper is about…. St. Peter’s Basilica Steve Jobs Apple Inc.

3. Factors Affecting Innovations (I)

4. Factors Affecting Innovations (II)

5. Characteristics of Corporate Innovations –Large Payoff –High Probability of Failure

6. Geographical Variation of Corporate R&D

7. Top and Bottom Five States for R&D Expenditure Top Five New Mexico Massachusetts Maryland Washington Connecticut Bottom Five Wyoming Louisiana Nevada Arkansas Oklahoma

8. R&D Spending and State Lotteries

9. 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

10. Our Intuition is…. Corporations Not detached from local environment Take risk on innovation if local residents are prone to gambling

11. Are Catholics more risk-taking than Protestants? “The Higher the Catholics-to-Protestants (CP) Ratio, the Higher Gambling Attitude” 1.Kumar, Page, and Spalt (2011, JFE) Stocks with lottery features IPO underpricing 2.Shu, Sulaeman, and Yeung (2012, MS) MFs: Higher return volatilities & Higher Turnover

12. CP Ratio Across the United States Source: Kumar, Page, and Spalt (JFE, 2011)

13. Religion and R&D

14. Religion and Patents

15. Religion and Citations

16. Major Findings 1.Firms in high CP ratio region spend more on innovation and attain higher innovative output 2.Social gambling and/or Religion: More important drivers of innovative activities than CEO overconfidence 3.Impact of CEO overconfidence on Innovative industries …..Conditioned on Gambling Preferences or Religion

17. 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

18. US Corporate Innovation Summary Statistics

19. County-Level Variables

20. 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

21. Social Gambling Preferences and Corporate Risk Taking (II)

22. Gambling Preferences and Corporate Innovation Input

23. Gambling Preferences and Corporate Innovation Output

24. Robustness Tests (I)

25. Robustness Tests (II)

26. Religion and CEO Overconfidence

27. Effect of Religion, Industry and Overconfidence

28. Thank You for Your Attention