Learning from the Joneses: Technology Spillover, Innovation Externality, and Stock Returns

54 Pages Posted: 13 May 2017 Last revised: 7 Jan 2022

See all articles by Kevin Tseng

Kevin Tseng

The Chinese University of Hong Kong (CUHK) - CUHK Business School; National Taiwan University - Department of Finance; National Taiwan University - Center for Research in Econometric Theory and Applications

Date Written: January 6, 2022

Abstract

This paper provides empirical evidence for the role of technology spillover, an important innovation externality, in asset pricing. Using patent and R&D data, I show that firms with more technology spillover earn 7.7% higher annualized returns than firms with less technology spillover. Exploiting three quasi-natural experiments, I find that the return effect is strengthened (attenuated) when there is a plausibly exogenous increase (decrease) in the flow of technological information across firms. I also find that firms with more technology spillover have higher cash flow sensitivity to aggregate consumption, numbers of new products, and stock return synchronicity. These findings are consistent with models on learning about new technology; specifically, spillover enables learning about new technology to facilitate timely and large-scale adoption of new technology, which in turn exposes spillover recipients to additional systematic risk. These findings highlight the influence of innovation externality on stock returns.

Keywords: technology spillover, externality, natural experiments, information flow, disclosure, stock returns

JEL Classification: D62, D83, G12, O30, O31, O33

Suggested Citation

Tseng, Kevin, Learning from the Joneses: Technology Spillover, Innovation Externality, and Stock Returns (January 6, 2022). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2967101 or http://dx.doi.org/10.2139/ssrn.2967101

Kevin Tseng (Contact Author)

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

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Shatin, N.T.
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National Taiwan University - Department of Finance ( email )

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Taipei, 106
Taiwan

National Taiwan University - Center for Research in Econometric Theory and Applications ( email )

1 Sec. 4, Roosevelt Road
Taipei 106, 106
Taiwan

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