Do Technology Spillovers Affect Corporate Financial Policies?

Abstract

From a technological standpoint, it is well known that firms are affected not just by their own R&D but by the R&D of their technological peer firms. Prior research shows that such affect corporate investment, productivity, and value. Our study examines the effect of technology spillovers on financial policies. We find that technology spillovers increase leverage. Moreover, equity becomes relatively more costly than debt: debt spreads fall while abnormal stock returns rise. Additional evidence supports three complementary channels that explain the increase in leverage and the wedge between the costs of debt and equity: greater redeployability of technology assets, greater information asymmetry, and greater mispricing of equity relative to debt. We use exogenous variation in R&D tax credits to identify the causal effect of technology spillovers.