Misvaluation and Corporate Inventiveness

Ming Dong, David Hirshleifer and Siew Hong Teoh

No 24142, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We test how market overvaluation affects corporate innovation. Estimated stock overvaluation is very strongly associated with measures of innovative inventiveness (novelty, originality, and scope), as well as R&D and innovative output (patent and citation counts). Misvaluation affects R&D more via a non-equity channel than via equity issuance. The sensitivity of innovative inventiveness to misvaluation is increasing 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 by encouraging firms to engage in highly inventive innovation.

JEL-codes: D22 D23 D25 G14 G3 G31 G32 G4 G41 O32 (search for similar items in EconPapers)
Date: 2017-12
New Economics Papers: this item is included in nep-cfn, nep-fmk, nep-ind, nep-ino, nep-sbm and nep-tid
Note: CF PR
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Published as Ming Dong & David Hirshleifer & Siew Hong Teoh, 2021. "Misvaluation and Corporate Inventiveness," Journal of Financial and Quantitative Analysis, vol 56(8), pages 2605-2633.

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Journal Article: Misvaluation and Corporate Inventiveness (2021)
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