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Innovation, investor sentiment, and firm-level experimentation

Sirio Aramonte

No 2015-67, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Due to frictions like informational externalities, firms invest too little in learning the productivity of newly available technologies through small-scale experimentation. I study the effect of investor sentiment on the relation between technological innovation and future firm-level R&D expenses, which include the resources used for small-scale experimentation. I find that rapidly improving investor sentiment strengthens the effect of technological innovation on one-year-ahead R&D expenses, and that the effect is more pronounced for high-tech firms with tighter financing constraints. The results are not driven by sentiment proxying for technological innovation or by sentiment and R&D expenses being jointly determined. The evidence is consistent with the hypothesis that sentiment counteracts frictions in the process of technology diffusion.

Keywords: Investor sentiment; R&D; Technological innovation (search for similar items in EconPapers)
JEL-codes: G02 G31 O32 O33 O40 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2015-08-12
New Economics Papers: this item is included in nep-cse, nep-ino and nep-sbm
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http://www.federalreserve.gov/econresdata/feds/2015/files/2015067pap.pdf Full text (application/pdf)
http://dx.doi.org/10.17016/FEDS.2015.067 http://dx.doi.org/10.17016/FEDS.2015.067 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2015-67

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