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Stock market liberalization and innovation

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  • Moshirian, Fariborz
  • Tian, Xuan
  • Zhang, Bohui
  • Zhang, Wenrui

Abstract

We investigate the effect of stock market liberalization on technological innovation. Using a sample of 20 economies that experience stock market liberalization, we find that these economies exhibit a higher level of innovation output after liberalization and that this effect is disproportionately stronger in more innovative industries. The relaxation of financial constraints, enhanced risk sharing between domestic and foreign investors, and improved corporate governance are three plausible channels that allow stock market liberalization to promote innovation. Finally, we show that technological innovation is a mechanism through which stock market liberalization affects productivity growth and therefore economic growth. Our paper provides new insights into the real effects of stock market liberalization on productivity growth and the economy.

Suggested Citation

  • Moshirian, Fariborz & Tian, Xuan & Zhang, Bohui & Zhang, Wenrui, 2021. "Stock market liberalization and innovation," Journal of Financial Economics, Elsevier, vol. 139(3), pages 985-1014.
    • Handle: RePEc:eee:jfinec:v:139:y:2021:i:3:p:985-1014
    DOI: 10.1016/j.jfineco.2020.08.018
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    Keywords

    Stock market liberalization; Innovation; Equity financing; Risk sharing; Corporate governance;
    All these keywords.

    JEL classification:

    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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