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Technology Spillovers, Information Externality, and Stock Price Crash Risk

Technology spillovers have previously been shown to positively affect a firm’s market value and innovation activities. We build on this literature by showing that value-relevant information from technology spillovers significantly reduces the likelihood of the focal firm experiencing a stock price crash. This result is robust to alternative measures and potential endogeneity. We further demonstrate two likely channels for the crash risk-reducing effect of technology spillovers. The first channel is managerial learning: the effect is more pronounced for firms whose managers are more likely to learn from technological peers. The second channel is investor learning: the effect is stronger for more opaque firms. Our findings provide novel evidence that the information externality associated with peer firms’ technology activities helps to reduce the focal firm’s stock price crash risk.