Title

Innovation and Price Informativeness

Document Type

Article

Publication Date

6-1-2017

Abstract

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.

DOI

10.1111/fima.12142

Publication Title

Financial Management

Volume Number

46

Issue Number

2

First Page

523

Last Page

546

ISSN

00463892

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