Misvaluation and Corporate Inventiveness
Journal of Financial and Quantitative Analysis
67 Pages Posted: 3 Dec 2016 Last revised: 26 Jun 2020
There are 2 versions of this paper
Misvaluation and Corporate Inventiveness
Misvaluation and Corporate Inventiveness
Date Written: February 16, 2020
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.
Keywords: Stock Market Misvaluation, Innovation, R&D, Patents, Behavioral Finance, Market Efficiency
JEL Classification: G14, G32, O32
Suggested Citation: Suggested Citation