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Market Sentiment and Innovation Activities

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  • Dang, Tri Vi
  • Xu, Zhaoxia

Abstract

We investigate potential mechanisms through which market-wide sentiment affects firms’ innovation activities. We provide evidence for the financing channel by showing that financially constrained firms are more likely to issue equity and invest more in research and development (R&D) than financially unconstrained firms at high market sentiment. Using time-varying manager sentiment measures, we find suggestive evidence for a sentiment spillover channel whereby market sentiment affects R&D investments through influencing manager sentiment. Furthermore, better patent portfolios are produced from R&D investments stimulated by high market sentiment. Market sentiment has a stronger impact on R&D than the capital expenditures of financially constrained firms.

Suggested Citation

  • Dang, Tri Vi & Xu, Zhaoxia, 2018. "Market Sentiment and Innovation Activities," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 53(3), pages 1135-1161, June.
    • Handle: RePEc:cup:jfinqa:v:53:y:2018:i:03:p:1135-1161_00
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    Cited by:

    1. Likitwongkajon, Napaporn & Vithessonthi, Chaiporn, 2021. "The short- and long-run effects of foreign investments on firm performance: Evidence from Asia Pacific," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 366-385.
    2. ÅžimÅŸek, Alp, 2021. "The Macroeconomics of Financial Speculation," CEPR Discussion Papers 15733, C.E.P.R. Discussion Papers.
    3. Derrick W. H. Fung & Charles C. Yang & Jason J. H. Yeh, 2024. "The market price to embedded value gap: an analysis of European life insurers," Review of Quantitative Finance and Accounting, Springer, vol. 62(1), pages 69-96, January.
    4. Su, Zhi & Lyu, Tongtong & Yin, Libo, 2022. "Are conditional illiquidity risks priced in China? A cross-sectional test," International Review of Financial Analysis, Elsevier, vol. 81(C).
    5. Sun, Lingxia & Lee, Dong Wook, 2019. "Dollar-weighted return on aggregate corporate sector: How is it distributed across countries?," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    6. Bhattacharya, Debarati & Cheng, Tzu-Chang Forrest & Chuang, Meng-Ju & Li, Wei-Hsien & Wang, Zi-Peng, 2024. "Terrorism-Induced Trauma and Corporate Innovation," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    7. Bostan, Ibrahim & Mian, G. Mujtaba, 2024. "Inventor CEOs and financing of innovation: Evidence from IPOs," Journal of Banking & Finance, Elsevier, vol. 164(C).
    8. Christopher Kurzhals & Lorenz Graf‐Vlachy & Andreas König, 2020. "Strategic leadership and technological innovation: A comprehensive review and research agenda," Corporate Governance: An International Review, Wiley Blackwell, vol. 28(6), pages 437-464, November.
    9. Ahmed, Huson Joher Ali & Azad, A.S.M. Sohel & Poon, Wai Ching & Safiullah, Md, 2023. "Is there a CSI-leverage nexus?," International Review of Financial Analysis, Elsevier, vol. 89(C).
    10. Xu, Zhaoxia, 2020. "Economic policy uncertainty, cost of capital, and corporate innovation," Journal of Banking & Finance, Elsevier, vol. 111(C).
    11. Huang, Jingchang & Zhao, Jing & Cao, June, 2021. "Environmental regulation and corporate R&D investment—evidence from a quasi-natural experiment," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 154-174.
    12. Shang, Longfei & Lin, Ji-Chai & Yang, Nan, 2023. "Easy money and competitive industries’ booms and busts," Journal of Empirical Finance, Elsevier, vol. 73(C), pages 65-85.
    13. Zhou, Xuemei & Liu, Qiang & Guo, Shuxin, 2021. "Do overnight returns explain firm-specific investor sentiment in China?," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 451-477.
    14. Li Dong & Xin Zhang & Jinlong Chen, 2024. "Does Investor Sentiment Drive Corporate Green Innovation: Evidence from China," Sustainability, MDPI, vol. 16(8), pages 1-20, April.
    15. Jia, Shaoqing & Yang, Liuyong & Zhou, Fangzhao, 2022. "Geopolitical risk and corporate innovation: Evidence from China," Journal of Multinational Financial Management, Elsevier, vol. 66(C).
    16. Dang, Tri Vi & Wang, Youan & Wang, Zigan, 2022. "The role of financial constraints in firm investment under pollution abatement regulation," Journal of Corporate Finance, Elsevier, vol. 76(C).
    17. Ding, Rui & Guo, Jintong & Zhang, Min, 2024. "Practice a poker face: Manager emotion and investor sentiment," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).

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