IPO and Firm Innovation:An Empirical Study based on Chinese Patent Data
ZHANG Jinfan, LI Hanya, HE Hui
International Monetary Fund; School of Economics, Shanghai Universityof Finance and Economics; School of Economics,Huazhong University of Science and Technology
Abstract:
We investigate the effect of stock market on firm innovation via the lens of initial public offering (IPO) using a uniquely matched Chinese firm-level data. We find that IPO leads to an increase of firm innovation activity. The impact of IPO on firm innovation varies across corporate governance structure, financial constraint, and ownership. We suggest that IPO boosts firm innovation via relaxing their financial constraint. Our results further illustrate that IPO makes a firm better at building a bigger innovation team and improving their innovation efficiency after IPO. We also find that governance arrangement aligning the interest of managers and shareholders can counteract the negative effect of IPO on innovation induced by principle-agent problem.
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