Does innovation success reduce the cost of financing? Evidence from private investments in public equity

Yini Liu

Finance Research Letters, 2023, vol. 52, issue C

Abstract: This paper investigates the relation between a firm's innovation performance and the cost of financing in private investments in public equity (PIPEs). Using patent-based metric data, I find that innovative firms issue securities in private equity placements at a 5.4% lower discount than non-innovative firms. The negative effect of innovation performance on PIPE discounts is more pronounced for firms in R&D intensive industries and firms with higher stock market illiquidity. Channel tests show that innovative firms are more likely to be led by strategic investors who are willing to pay a higher price to support innovative issuers. The results are robust to alternative methods that mitigate endogeneity issues.

Keywords: Innovation; Private investments in public equity (PIPEs); Private equity placements (search for similar items in EconPapers)
JEL-codes: G32 G34 O31 O32 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322005554

DOI: 10.1016/j.frl.2022.103378

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