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Firm-level R&D after periods of intense technological innovation: the role of investor sentiment

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  • Sirio Aramonte
  • Matthew Carl

Abstract

Following periods of intense technological innovation, R&D is a critical driver of technology diffusion, but it is subject to frictions that can lower it below the level firms would undertake otherwise. We study whether sentiment can counterbalance these frictions and thus strengthen the link between firm-level R&D and lagged aggregate innovation. We find a positive answer for low-tech firms, which represent the main conduit for technology diffusion. The effect is stronger in the presence of informational externalities, that is when the results of experimentation funded by a company are observable by competitors. In contrast to the literature on sentiment and capital expenditures, the effect is weaker for financially constrained firms.

Suggested Citation

  • Sirio Aramonte & Matthew Carl, 2021. "Firm-level R&D after periods of intense technological innovation: the role of investor sentiment," BIS Working Papers 916, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:916
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    More about this item

    Keywords

    investor sentiment; technological innovation; R&D;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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