IMF Working Papers

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

By Hui He, Hanya Li, Jinfan Zhang

June 30, 2017

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Hui He, Hanya Li, and Jinfan Zhang. Does the Stock Market Boost Firm Innovation?: Evidence from Chinese Firms, (USA: International Monetary Fund, 2017) accessed September 18, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Econometric analysis, Economic sectors, Financial institutions, Financial markets, Initial public offering, Probit models, Public enterprises, Stock markets, Stocks

Keywords: China, Corporate Governance, External finance, Financial Constraint, Initial public offering, Innovation, Innovation performance, IPO, IPO benefit, IPO decision, IPO event, IPO firm, IPO year, Natural logarithm, Probit models, Public enterprises, State Ownership, Stock markets, Stocks, WP

Publication Details

  • Pages:

    56

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2017/147

  • Stock No:

    WPIEA2017147

  • ISBN:

    9781484303726

  • ISSN:

    1018-5941