Elevated levels of government debt raise concerns about their effects on long-term growth prospects. Using the cross section of US stock returns, we show that (i) high-R&D firms are more exposed to government debt and pay higher expected returns than low-R&D firms, and (ii) higher levels of the debt-to-GDP ratio predict higher risk premiums for high-R&D firms. Furthermore, rises in the cost of capital for innovation-intensive firms predict declines in subsequent productivity and economic growth. We propose a production-based asset pricing model with endogenous innovation and fiscal policy shocks that can rationalize key aspects of the empirical evidence. Our study highlights a novel and distinct risk channel shaping the link between government debt and future growth.

Government debt and the returns to innovation

Croce, Mariano M.;
2019

Abstract

Elevated levels of government debt raise concerns about their effects on long-term growth prospects. Using the cross section of US stock returns, we show that (i) high-R&D firms are more exposed to government debt and pay higher expected returns than low-R&D firms, and (ii) higher levels of the debt-to-GDP ratio predict higher risk premiums for high-R&D firms. Furthermore, rises in the cost of capital for innovation-intensive firms predict declines in subsequent productivity and economic growth. We propose a production-based asset pricing model with endogenous innovation and fiscal policy shocks that can rationalize key aspects of the empirical evidence. Our study highlights a novel and distinct risk channel shaping the link between government debt and future growth.
2019
2018
Croce, Mariano M.; Nguyen, Thien Tung; Raymond, Steve; Schmid, Lukas
File in questo prodotto:
File Dimensione Formato  
ViewPageProof_FINEC_3003.pdf

non disponibili

Descrizione: Articolo principale
Tipologia: Documento in Post-print (Post-print document)
Licenza: NON PUBBLICO - Accesso privato/ristretto
Dimensione 1.21 MB
Formato Adobe PDF
1.21 MB Adobe PDF   Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/4012542
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 36
  • ???jsp.display-item.citation.isi??? 28
social impact