Event Details

Title: Innovation During Challenging Times

Abtract: When do positive news about future technological advancements have the greatest economic impact: during recessions or economic booms? Recessions may represent opportune times for investment in relatively cheaper, productivity-enhancing activities. However, tighter financial constraints during recessions may limit the ability to secure funding for such investments. We explore this dichotomy by exploiting patent-based innovation shocks, defined by changes in stock market valuations of firms receiving patent grants. Our results show that aggregate patent-based innovation shocks have a greater impact on the economy during recessions, leading to a more significant rise in private investment. Firm-level data further reveals that firms tend to increase capital investment and R&D expenditures in response to these innovation shocks, especially during recessions. Financial constraints play a crucial role, with the larger impact during recessions driven by firms with low default risk.