Small innovators: No risk, No return

Noah Stoffman, Michael Woeppel and M. Deniz Yavuz

Journal of Accounting and Economics, 2022, vol. 74, issue 1

Abstract: We show that small innovators (i.e., small firms with recent patent grants) earn higher future returns than small non-innovators. However, we find no such innovation premium among large firms. The higher returns are driven by risk, not underreaction to announcements of recent patent grants. We find that being small and innovative interacts with financial constraints to explain the higher returns. These interactions are more important in the presence of greater information asymmetry. The higher cost of equity among small innovators has implications for their investment, growth, and capital structure decisions.

Keywords: Cost of equity; Disclosure; Financial constraints; Information asymmetry; Innovation; Patents (search for similar items in EconPapers)
JEL-codes: D23 G14 M41 O30 O31 O34 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:74:y:2022:i:1:s0165410122000155

DOI: 10.1016/j.jacceco.2022.101492

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