Innovation and Price Informativeness

We study whether the innovation decisions of a firm are improved as a result of information reflected in the firm's stock price. We show that firms with more informative stock prices, as measured by price nonsynchronicity, have better innovation outcomes, as measured by the number of patents an...

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Bibliographic Details
Published inFinancial management Vol. 46; no. 2; pp. 523 - 546
Main Authors Mathers, Ani Manakyan, Wang, Bin, Wang, Xiaohong (Sara)
Format Journal Article
LanguageEnglish
Published Tampa Wiley Blackwell 22.06.2017
Financial Management Association
Blackwell Publishing Ltd
Subjects
Analysis
Capital markets
Citations
Economic models
Financial management
Innovations
Prices
Prices and rates
Stock prices
Stocks
Technological innovations
Uncertainty
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Summary:We study whether the innovation decisions of a firm are improved as a result of information reflected in the firm's stock price. We show that firms with more informative stock prices, as measured by price nonsynchronicity, have better innovation outcomes, as measured by the number of patents and patent citations. Our results are not driven by managerial private information and are robust to various alternative specifications. We also find that price informativeness is more important to innovation when managers are less experienced or face greater uncertainty about the optimal innovation strategy, and that these effects are primarily observed in small- and mid-sized firms where additional information may be of greater value. Our results are consistent with the notion that capital markets can have real effects on the economy.
Bibliography:Ani Manakyan Mathers is an Assistant Professor in the Department of Economics and Finance in the Perdue School of Business at Salisbury University in Salisbury, MD. Bin Wang is an Assistant Professor in Department of Finance in College of Business Administration at Marquette University in Milwaukee, WI. Xiaohong (Sara) Wang is an Assistant Professor in the Department of Accounting, Business Law, and Finance in the College of Business and Management at Northeastern Illinois University in Chicago, IL
We are grateful to Marc Lipson (Editor) and an anonymous referee for helpful comments and suggestions. We thank Gary Chen, Incheol Kim, and participants at the Eastern Financial Association 2016 Annual Meetings for useful comments. Xiaohong (Sara) Wang acknowledges financial support from the College of Business and Management at Northeastern Illinois University. All remaining errors are our own
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ISSN:0046-3892
1755-053X
DOI:10.1111/fima.12142