Knowledge Cycles and Corporate Investment

62 Pages Posted: 11 Jul 2019 Last revised: 27 Dec 2021

See all articles by Maria Cecilia Bustamante

Maria Cecilia Bustamante

University of Maryland - Department of Finance

Julien Cujean

Institute for Financial Management

Laurent Frésard

Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: December 21, 2021

Abstract

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

Bustamante, Maria Cecilia and Cujean, Julien and Frésard, Laurent, Knowledge Cycles and Corporate Investment (December 21, 2021). Available at SSRN: https://ssrn.com/abstract=3418171 or http://dx.doi.org/10.2139/ssrn.3418171

Maria Cecilia Bustamante

University of Maryland - Department of Finance ( email )

Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States

HOME PAGE: http://https://sites.google.com/a/rhsmith.umd.edu/mcbustam/?pli=1

Julien Cujean (Contact Author)

Institute for Financial Management ( email )

Gesellschaftsstrasse 49
Bern, BERN 3001
Switzerland
3012 (Fax)

Laurent Frésard

Universita della Svizzera italiana (USI Lugano) ( email )

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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