Knowledge Cycles and Corporate Investment
62 Pages Posted: 11 Jul 2019 Last revised: 27 Dec 2021
Date Written: December 21, 2021
We examine how firms invest along their knowledge cycles. We show that if investment is only a means to accumulate capital, it declines over the cycle and moves exactly together with value. But in fact because investment also creates knowledge serendipitously, it is high early and late in the cycle. Its relation with value spikes before new cycles start and declines thereafter. We uncover this pattern in the data, identifying new cycles using sharp changes in patents' citations to prior technologies. Cycles' length has tripled in recent years, coinciding with concurrent changes in the investment-value relation.
Keywords: Investment, Experimentation, Exploration, Knowledge Capital, Knowledge Cycles, Total $Q$, Intangible Capital
JEL Classification: G31,D83
Suggested Citation: Suggested Citation