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

Hui He (), Hanya Li and Jinfan Zhang

No 2017/147, IMF Working Papers from International Monetary Fund

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.

Keywords: WP; IPO firm; natural logarithm; external finance; IPO; Innovation; Financial Constraint; Corporate Governance; State Ownership; China; IPO year; IPO event; IPO decision; IPO benefit; innovation performance; Initial public offering; Stock markets; Stocks; Public enterprises; Probit models (search for similar items in EconPapers)
Pages: 56
Date: 2017-06-30
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Citations: View citations in EconPapers (1)

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