Xuelin Li (李学林)

Publication

 1  Find and Replace: R&D Investment Following the Erosion of Existing Products [PDF] [Online Appendix]
Joshua L. Krieger, Xuelin Li, and Richard T. Thakor
Management Science, 68(9):6552-6571 (September 2022).
Click for Abstract How do innovative firms react when existing products experience negative shocks? We explore this question with detailed project-level data from drug development firms. Using FDA Public Health Advisories as idiosyncratic negative shocks to approved drugs, we examine how drug makers react through investment decisions. Following these shocks, affected firms increase R&D expenditures, driven by a higher likelihood of acquiring external innovations, rather than developing novel projects internally. Such acquisition activities are concentrated in firms with weak research pipelines. We also find that competing developers move resources away from the affected therapeutic areas. Our results show how investments in specialized commercialization capital create path dependencies and alter the direction of R&D investments.
 2  Common Ownership and Innovation Efficiency [PDF] [Online Appendix]
Xuelin Li, Tong Liu, and Lucian A. Taylor
Journal of Financial Economics, Volume 147, Issue 3, Pages 475-497 (March 2023).

- Covered by Knowledge@Wharton

Click for Abstract How does common ownership affect innovation? We study this question using project-level data on pharmaceutical startups and their venture capital (VC) investors. We find that common ownership leads VCs to hold back projects, withhold funding, and redirect innovation at lagging startups. Effects are stronger where R&D costs are larger, consistent with common owners aiming to cut duplicate costs. Effects are also stronger where technological similarity is greater and preexisting competition is lower, consistent with common owners seeking market power for their surviving projects. Overall, common VC ownership appears to generate social benefits, via improved innovation efficiency, but also social costs.
 3  Merchants of Death: The Effect of Credit Supply Shocks on Hospital Outcomes [PDF]
Cyrus Aghamolla, Pinar Karaca-Mandic, Xuelin Li, and Richard T. Thakor
American Economic Review, Vol. 114, No. 11, pp. 3623–68, (November 2024).

- Covered by Bloomberg
- Best Paper Award, 2022 Financial Markets and Corporate Governance Conference

Click for Abstract This study examines the link between credit supply and hospital health outcomes. We use bank stress tests as exogenous shocks to credit access for hospitals that have lending relationships with tested banks. We find that affected hospitals shift their operations to increase resource utilization following a negative credit shock but reduce the quality of their care to patients across a variety of measures, including a significant increase in risk-adjusted readmission and mortality rates. The results indicate that access to credit can affect the quality of healthcare hospitals deliver, pointing to important spillover effects of credit market frictions on health outcomes.
 4  Financial Effects of Remote Product Delivery: Evidence from Hospitals [PDF]
Kimberly Cornaggia, Xuelin Li, and Zihan Ye
Review of Financial Studies, Volume 37, Issue 9, Pages 2817–2854 (September 2024).
Click for Abstract We study financial effects of remote product delivery in the healthcare industry. Exploiting staggered law adoption for identification, we find that telehealth provision redistributes hospital operations and access to capital away from rural communities. As urban telehealth providers acquire rural patients, rural hospitals experience decreased revenue and profit, credit rating downgrades, increased cost of capital, and ultimately risk of closure. Although telehealth reduces travel costs, some communities lose access to acute care. Overall, we conclude that remote healthcare services have financial consequences as well as real effects, and their benefits are unequally distributed.
 5  Healthcare across Boundaries: Urban-Rural Differences in the Financial and Healthcare Consequences of Telehealth Adoption [PDF]
Meizi Zhou, Xuelin Li, and Gordon Burtch
Information Systems Research, Vol. 35, No. 3, pp. 1092–1113, (September 2024).

- Best Paper Award, 19th ZEW Conference on the Economics of Information and Communication Technologies

Click for Abstract We study the impacts of telehealth adoption on geographic competition among urban and rural healthcare providers. We consider a quasinatural experiment: states’ entry into the Interstate Medical Licensure Compact, wherein the entry events facilitate healthcare providers to adopt telehealth technology. By analyzing a representative sample of providers, we first establish the Compact entry shock’s validity and its positive effect on the supply of medical services. We then report evidence that there are service and payment shifts from rural providers to urban providers (i.e., urban providers are more likely to benefit from the Compact entry financially). Relying on patients’ telehealth reimbursement claim data, we observe two mechanisms contributing to the revenue redistribution: the substitution and gateway effects of telehealth. Finally, we show that telehealth readiness and service quality moderate the impact of telehealth adoption. These findings speak to both potentially positive and negative consequences for welfare.
 6  Aggressive Pivots and Entrepreneurial Skill [PDF]
Xuelin Li, and Martin Szydlowski
American Economic Journal: Micro, Forthcoming.
Click for Abstract We study pivots as signaling devices in a dynamic experimentation model. An entrepreneur receives funding from an investor and has private information about a project, which requires costly experimentation to succeed. The entrepreneur has a real option to pivot, i.e., to abandon the project and to start a new one. Investors learn about the project from the arrival of exogenous information and from the entrepreneur’s pivoting decisions. We characterize signaling equilibria in which high-skill entrepreneurs pivot early. Such early pivots are associated with a higher likelihood of success and with more favorable funding terms following the pivot.

Working Paper

 7  Paying off the Competition: Market Power and Innovation Incentives, National Bureau of Economic Research No.w28964 [PDF]
Xuelin Li, and Andrew W. Lo and Richard T. Thakor
Review of Finance Special Issue on Finance and Product Markets, conditionally accepted.

- Covered by VoxEU, Wall Street Journal

Click for Abstract How does a firm’s market power in existing products affect its incentives to innovate? We explore this fundamental question using granular project-level and firm-level data from the pharmaceutical industry, focusing on a particular mechanism through which incumbent firms maintain their market power: “reverse payment” or “pay-for-delay” agreements to delay the market entry of competitors. We first show that when firms are unfettered in their use of “pay-for-delay” agreements, they reduce their innovation activities in response to the potential entry of direct competitors. We then examine a legal ruling that subjected these agreements to antitrust litigation, thereby reducing the incentive to enter them. After the ruling, incumbent firms increased their net innovation activities in response to competitive entry. These effects center on firms with products that are more directly affected by competition. However, at the product therapeutic area level, we find a reduction in innovation by new entrants after the ruling in response to increased competition. Overall, these results are consistent with firms having reduced incentives to innovate when they are able to maintain their market power, highlighting a specific channel through which this occurs.
 8  Hype Cycles: Dynamic Information Design with Two Audiences [PDF]
Xuelin Li, Martin Szydlowski, and Fangyuan Yu
Journal of Economic Theory, conditionally accepted.
Click for Abstract We study dynamic Bayesian persuasion in an entry game. A sender publicly reveals information to an adopter and a competitor. When the sender's loss from competition is small, the optimal policy features hype cycles: the sender first exaggerates the value of a technology to attract the adopter, and then reveals negative information to deter the competitor. Otherwise, the optimal policy features caution: the sender first underplays the value of the technology and reveals positive information later. Hype cycles are more severe in stagnant industries and with higher threat of competition, and arise in industries where the adopter's and the competitor's entry decisions are complementary.
 9  Propagation of the Opioid Epidemic in the Banking Sector [PDF]
Xuelin Li, and Zihan Ye
Click for Abstract We examine how public health crises undermine bank deposit funding and constrain lending activities. Using the opioid epidemic as our empirical setting, we document a negative link between local opioid supply and deposit growth at both the county and bank levels. Facing deposit drains, banks systematically reduce lending activities, including mortgage origination and approval, even in distant regions connected to the epidemic areas through banking networks. These reductions are more pronounced for retained loans and concentrate in smaller banks facing greater financial frictions and lacking geographic diversification. Our findings highlight the challenges to bank operations arising from population health conditions.
 10  Appropriated Growth [PDF]
Yuchen Chen, Xuelin Li, Richard T. Thakor and Colin Ward
Click for Abstract We assess how labor mobility affects intangible investment in a dynamic agency model featuring both knowledge appropriation and moral hazard. We argue that restricting worker mobility, while reducing employees' appropriation of firm intangible capital, can hurt their incentives to exert effort. Our calibration to U.S. data targets responses of employee turnover and firms' intangible investment to variations in workers' outside option values, identified through exogenous shocks to non-compete enforcement. The model simulation implies that knowledge spillovers mitigate the costs of incentive provision when agency frictions are severe, and the optimal labor mobility regulation should balance this benefit against turnover risk. Finally, we highlight the use of deferred compensation bonuses in the optimal contract as a retention mechanism, even among under-performing firms.
 11  How Does VC Activism Backfire in Startup Experimentation? [PDF]
Xuelin Li, Sijie Wang, Jiajie Xu and Xiang Zheng
Click for Abstract We utilize granular data from the life science sector to study how VC activism affects strategic experimentation decisions. We show that pipeline prioritization, deciding the timing and selection of projects to advance, is prevalent in startup growth. Despite more interactions from smaller and more focused VCs, their biotech startups are less likely to exit via IPOs. Consistent with such activism prematurely prioritizing the research pipeline, startups backed by concentrated VCs exhibit slower progress in clinical trials and tend to discontinue projects due to pipeline priority rather than financial and quality reasons. For identification, we use limited partners' adoption of ESG objectives as instruments for affected VCs' portfolio attention. Lastly, we highlight conflicting experimentation preferences between general partners and founding teams due to investment horizon and portfolio cannibalization.
 12  Can Decision Support Systems Distort Human Capital? [PDF]
Xuelin Li, and Meizi Zhou
Management Science, major revision.

- Best Paper Award, The 14th Annual Conference on Health IT and Analytics (CHITA 2024)

Click for Abstract We document that interactions with manipulated decision support systems can distort the development of human capital using the context of opioid prescription. Physicians in our sample adopted electronic health record software from a list of federally certified companies in 2011. Between 2016 and spring 2019, one company secretly embedded a biased decision support system function to promote extended-release opioid sales. Affected physicians not only increased opioid claims relative to the control group during the treatment window but also maintained a higher propensity for prescriptions even after the removal of the biased function. This long-term distortion of human capital relies on the unconsciousness of algorithmic biases and does not occur following other explicit promotions, such as pharmaceutical detailing payments. Using machine-learning algorithms, we quantify that human capital distortion explains 54% of the treatment effects in a physician decision model with dynamic learning. Experience with opioids, along with caution regarding elder patients, mitigates the distortion.

In Progress

 1  The Social Cost of Liquidity Disclosure: Evidence from Hospitals
Thomas Bourveau, Xavier Giroud, Yifan Ji, and Xuelin Li

- Winner of the 2024 John L. Weinberg/IRRCi Research Paper Competition