New Technology Sectoral Disruptions

 Abstract

We construct a novel measure of technology sectoral disruptions (TSDs) using a dynamic text-based spatial model of patents based on the extent to which innovation is suddenly highly correlated across multiple industries. We identify multiple TSDs occurring over a 70-year period of time. Abnormal stock returns and insider trading indicate that TSDs are largely unexpected and generate positive and long-lasting value gains. Impacted small firms initially increase equity issuance, reduce equity payouts, and increase both R&D and asset growth and experience increased valuations consistent with Schumpeter’s 1912 theory of creative destruction. Large firms, on average, reduce R&D and capital expenditures and experience declining valuations and decreased sales growth.