Document Type
Article
Publication Date
1-28-2025
Abstract
This paper examines whether and how market valuation influences firm innovation, using an ex ante valuation measure that filters firm size and growth prospects from tangible investment. Specifically, by utilizing the National Bureau of Economic Research (NBER) patent database, I find that firms with high market valuations generate more innovative outputs, as measured by the number of patents and patent citations. Causality is established using mutual fund flows as an exogenous shock, demonstrating a strong effect of market valuation on firm innovation. Consistent with the idea that managers take advantage of irrationally low discount rates by issuing equity and investing the proceeds, these results are more pronounced among firms with high financial constraints and overvaluation. The sensitivity of innovative output to market valuation varies with equity market timing and sentiment, but is not affected by whether or not firms are issuing equity.
Digital Object Identifier (DOI)
10.1007/s10690-024-09514-2
Repository Citation
Li, Keming, "Valuation Driven Innovation" (2025). All Faculty Scholarship. 66.
https://digitalcommons.tamusa.edu/pubs_faculty/66
Comments
Originally published as:
Li, K. Valuation Driven Innovation. Asia-Pac Financ Markets (2025). https://doi.org/10.1007/s10690-024-09514-2
© The Author(s) 2025
Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/.