Does Innovation Relieve Corporate Financial Distress?

Keming Li ()
Additional contact information
Keming Li: Texas A&M University-San Antonio

Asia-Pacific Financial Markets, 2025, vol. 32, issue 1, No 3, 76 pages

Abstract: Abstract This paper examines whether innovation ability improves corporate performance of financially distressed firms. I begin by providing direct evidence that innovative firms in financial distress have significantly better future operating performance. To identify the causal effect, I study an exogenous shock—State Street Bank and Trust Company v. Signature Financial Group, Inc.—and find that an increase in innovation ability causes an improvement in future performance of distressed firms. Financial markets tend to pay more attention to innovative distressed firms, but these firms do not earn abnormal equity returns than their counterparts. I document that average investors hold pessimistic perspectives on distressed firms with innovation ability. In contrast, institutional investors have contrarian beliefs on distressed firms with innovation ability and hold more shares in these firms.

Keywords: Financial Distress; Innovation Ability; Corporate Performance; Overreaction (search for similar items in EconPapers)
JEL-codes: G02 G11 G33 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10690-023-09445-4 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:apfinm:v:32:y:2025:i:1:d:10.1007_s10690-023-09445-4

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/10690/PS2

DOI: 10.1007/s10690-023-09445-4

Access Statistics for this article

Asia-Pacific Financial Markets is currently edited by Jiro Akahori

More articles in Asia-Pacific Financial Markets from Springer, Japanese Association of Financial Economics and Engineering
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().