Endogenous Social Effects on Corporate Research and Development
50 Pages Posted: 2 Jul 2019 Last revised: 17 Aug 2021
Date Written: July 1, 2019
We examine endogenous social effects proposed by Manski (1993) on corporate research and development (R&D) spending. Using state-level enactments of the Uniform Trade Secrets Act as exogenous shocks, we find that focal high-tech firms respond positively to peers’ R&D expenditures. We find no results in falsification tests based on placebo law changes, with capital expenditures as dependent variable, or with placebo peers. Moreover, the results are stronger with higher economic policy uncertainty, higher firm risk, smaller market capitalization, tighter financial constraints, and a higher R&D quantile. Finally, our results are robust to various regression setups and alternative definitions of peers.
Keywords: R&D; endogenous social effects; peer effect, trade secret legal protection, high-tech firms, capital expenditure
JEL Classification: G31, G32, G34, G41
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