How do technological innovations affect corporate investment and hiring?

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In this paper, we study the relation between technological advancement, and corporate investment and hiring. We build a corporate investment model with dynamic technology conditions, and we find the optimal investment and labor inputs increase in response to technological innovation shocks. Consistent with the model predictions, we empirically show that corporate investment and hiring increase following technological advancements, using various measures of technological innovation. Further, we find the effect is stronger for firms in more innovative industry, firms with higher capital intensity and firms with higher market-to-book ratio. Our findings provide evidence for the endogenous growth theory, i.e., firms with successful innovations tend to expand in capital investment and employment, suggesting technological innovations are, to some extent, Hicks-neutral.

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North American Journal of Economics and Finance