Innovation, investor sentiment, and firm-level experimentation
No 2015-67, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)
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
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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