‘The Cost of Capital and the Innovative Efficiency of Public Firms’
by Oleg Gredil
Tulane University
https://zoom.us/j/6834690808
Meeting ID: 683 469 0808
Abstract
We study the effects of the cost of capital on innovative efficiency and output. Using idiosyncratic shocks to the peer equity valuations, we show that costlier capital increases successful patent applications, future patent citations, and market valuation of future patents. An interquartile increase in the cost of capital increases the innovative efficiency per dollar of intangibles by 0.014 to 0.043 of the outcome’s standard deviation or 6% to 11% of the average output. We show that in response our proxy of adverse shocks to the cost of capital, firms reduce capital and labor expenditures. They also tend to shrink their sales and fixed assets but maintain their R&D expenditures. Keywords: Innovation, Innovative efficiency, Cost of Capital, Discount-rate shocks, R&D adjustment cost, Investments, Patenting, ESG JEL: G30,G32,G34,O3,O34.
