Government Debt and the Returns to Innovation

Mariano Massimiliano Croce, Thien Tung Nguyen, Steve McGregor Raymond and Lukas Schmid
Additional contact information
Mariano Massimiliano Croce: University of North Carolina
Thien Tung Nguyen: Ohio State University
Steve McGregor Raymond: University of North Carolina
Lukas Schmid: Duke University

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Elevated levels of government debt raise concerns about their effects on long-term growth prospects. This study shows that (i) high-R&D firms are more exposed to government debt and pay higher expected returns than low-R&D firms; and (ii) higher levels of the debt-to-GDP ratio predict higher risk premia for high-R&D firms. Furthermore, rises in the cost of capital for innovation-intensive firms are associated with declines in subsequent R&D activity and economic growth. We study these findings in a production-based asset pricing model with endogenous innovation. By accounting for fiscal and political risk, our model reproduces several aspects of the empirical evidence.

JEL-codes: C62 F31 G12 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-ino, nep-knm, nep-mac, nep-sbm and nep-tid
References: Add references at CitEc
Citations:

Downloads: (external link)
http://poseidon01.ssrn.com/delivery.php?ID=4911270 ... 102083103002&EXT=pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2016-10

Access Statistics for this paper

More papers in Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().