New Technology Sectoral Disruptions
68 Pages Posted: 17 Jun 2024 Last revised: 11 Jan 2025
Date Written: December 01, 2023
Abstract
We construct a novel measure of technology sectoral disruptions (TSDs) using a dynamic text-based spatial model of patents based on the extent to which innovation is suddenly highly correlated across multiple industries. We identify multiple TSDs occurring over a 70-year period of time. Abnormal stock returns and insider trading indicate that TSDs are largely unexpected and generate positive and long-lasting value gains. Impacted small firms initially increase equity issuance, reduce equity payouts, and increase both R&D and asset growth and experience increased valuations consistent with Schumpeter's 1912 theory of creative destruction and Arrow's 1962 theory of innovation by smaller firms. Large firms, in contrast, on average reduce R&D and capital expenditures and experience declining valuations and decreased sales growth.
Keywords: Patents, sectoral disruptions, innovation, R&D, insider trading, analyst forecasts, Schumpeter
JEL Classification: O31, O34, D43, F13
Suggested Citation: Suggested Citation