Finance Seminar: Dr Runchith Dissanayake
Government Spending Shocks and Firm Innovation
Using news-based military build-up shocks, we show a negative association between changes in government spending and firm-level innovation. Firms respond to spending shocks by reducing innovation across every stage – R&D inputs, patents and new product announcements. The negative impact of spending shocks on innovation is stronger among firms that are more vulnerable to demand downturns, firms whose debt securities are more credit worthy and hence closer substitutes for government bonds, and firms that are more sensitive to general macroeconomic uncertainty. Our results are consistent with the notion that government spending deters firm innovation, which is a key driver of long-run economic growth.
Dr Runchith Dissanayake is a Senior Lecturer of Finance at the Queensland University of Technology. Dr Dissanayake has a PhD in Finance from the University of Alberta and was a visiting scholar at the University of California, San Diego in 2015. Dr Dissanayake's research focuses on issues in macro-finance and corporate finance.