Misvaluation and Corporate Inventiveness

Ming Dong, David Hirshleifer and Siew Hong Teoh

Journal of Financial and Quantitative Analysis, 2021, vol. 56, issue 8, 2605-2633

Abstract: We test how market overvaluation affects corporate innovation. Estimated stock overvaluation is strongly associated with measures of innovative inventiveness (novelty, originality, and scope), as well as research and development (R&D) and innovative output (patent and citation counts). Misvaluation affects R&D more via a nonequity channel than via equity issuance. The sensitivity of innovative inventiveness to misvaluation increases with share turnover and overvaluation. The frequency of exceptionally high innovative inputs/outputs increases with overvaluation. This evidence suggests that market overvaluation may generate social value by increasing innovative output and encouraging firms to engage in “moon shots.”

Date: 2021
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Working Paper: Misvaluation and Corporate Inventiveness (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:56:y:2021:i:8:p:2605-2633_1

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