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Does the Stock Market Boost Firm Innovation?: Evidence from Chinese Firms

Author

Listed:
  • Hui He
  • Hanya Li
  • Jinfan Zhang

Abstract

The paper analyses the effect of the stock market on firm innovation through the lens of initial public offering (IPO) using uniquely matched Chinese firm-level data. We find that IPOs lead to an increase in both the quantity and quality of firm innovation activity. In addition, IPOs expand a firm’s scope of innovation beyond its core business. The impact of IPOs on firm innovation varies across financial constraints, corporate governance, and ownership structures. Our results further illustrate that IPOs induce a firm to increase the number of inventors and enable better retention of existing inventors after the IPO. Finally, we show that the enhanced innovation activity resulting from IPOs increases a firm’s Tobin’s Q in the long run.

Suggested Citation

  • Hui He & Hanya Li & Jinfan Zhang, 2017. "Does the Stock Market Boost Firm Innovation?: Evidence from Chinese Firms," IMF Working Papers 2017/147, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2017/147
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=44983
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    Cited by:

    1. Blake Rayfield & Omer Unsal, 2021. "Institutional monitoring and litigation risk: Evidence from employee disputes," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 44(1), pages 81-119, April.

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