The outsized influence of alcohol on financial markets in China and how legal protection for trade secrets spurs innovation are among our featured research this month. Other notable papers include an examination of the factors that influence an airline’s adoption of new innovations, and how a form of dementia impacts people’s impatience for rewards. 

How drinking “clubs” impact China’s financial markets

Business-related drinking culture is contributing to companies in China distorting or faking public financial information. That’s the surprising finding of a new study Massimo Massa and his co-authors published in the Journal of Financial and Quantitative Analysis. 

The researchers found that business leaders, auditors and even regulators who drink together create informal networks where everyone in the "club" protects one another, even if it hurts the public market. The evidence? Toxic alcohol scandals that shook up local drinking habits also significantly reduced firms’ distortion of their financial information in that location.

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How radical innovations impact adoption 

Henrich Greve and his co-author looked at the speed of adoption of new technologies or products within the aviation sector. They discovered that the nature of the innovation was crucial, and that companies relied on different factors to help make those decisions. 

Specifically, adoption of simple upgrades, such as the Airbus A320neo (new engine/same plane), were based on cost advantages. For more radical technological or organisational innovations, such as investing in the new Boeing 787 or point-to-point flying, the experiences of early adopters and extensive trials were crucial before firms felt comfortable in adopting the innovation.

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Can dementia make people more impatient?

Individuals with a particular form of dementia are much more impatient than healthy adults when it comes to food or financial rewards, Hilke Plassmann and her co-authors found in a study published in Communications Biology. Using MRI scans, the team identified that the impatience was the result of atrophy in specific regions of the brain that typically help process emotional value and the ability to imagine future consequences. The findings show that reward impatience is a core feature of the disease and such behaviour could eventually serve as a marker for very early neurodegenerative risk. 

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The benefits of keeping trade secrets

While patents often dominate the conversation around intellectual property, trade secrets – which account for some US$5 trillion in value among US firms – are the unsung hero. A study published in Management Science by Aldona Kapacinskaite and her co-author provides rare, granular evidence on how firms manage these secrets in high-stakes environments. 

Analysing the US hydraulic fracturing industry before and after the 2016 Defend Trade Secrets Act (DTSA), the authors found that stronger legal protection did more than help firms hide information – they actively encouraged firms to deploy more novel, productive technologies that were previously deemed too "risky" to use in the field.

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