This paper provides empirical evidence for the role of technology spillover, an important innovation externality, in asset pricing. Using patent and R&D data, I show that firms with more technology spillover earn 7.7% higher annualized returns than firms with less technology spillover. Exploiting three quasi-natural experiments, I find that the return effect is strengthened (attenuated) when there is a plausibly exogenous increase (decrease) in the flow of technological information across firms. I also find that firms with more technology spillover have higher cash flow sensitivity to aggregate consumption, numbers of new products, and stock return synchronicity. These findings are consistent with models on learning about new technology; specifically, spillover enables learning about new technology to facilitate timely and large-scale adoption of new technology, which in turn exposes spillover recipients to additional systematic risk. These findings highlight the influence of innovation externality on stock returns.

This study examines whether and how financial statement comparability facilitates the dissemination of innovative knowledge between firms and stimulates the creation of new knowledge. Using cross-patent citations to track interfirm knowledge transfers, we find that comparability increases firms' incentives to learn from peers and create new patents that cite their peers' existing patents. The investigation into the mechanism reveals that comparability improves firms’ ability to estimate the monetary value of peer knowledge and predict their own financial benefits from knowledge acquisition. The impact of comparability is more pronounced when peer knowledge is more publicly accessible or of higher monetary value. Consequently, the acquired knowledge fosters follow-on innovation, enabling firms to produce more patents with greater economic significance. Evidence from two quasi-natural experiments suggests that our findings are plausibly causal. Overall, our study highlights the important role of accounting comparability in facilitating knowledge dissemination.