Law, Stock Markets, and Innovation

41 Pages Posted: 27 Jun 2012

See all articles by James R. Brown

James R. Brown

Iowa State University - Department of Finance

Gustav Martinsson

Royal Institute of Technology (KTH) - Department of Industrial Economics and Management (INDEK); Stockholm School of Economics - Stockholm School of Economics - Swedish House of Finance, Students; Institute for Financial Research (SIFR)

Bruce C. Petersen

Washington University in St. Louis - Department of Economics

Date Written: April 30, 2012

Abstract

We study a broad sample of firms across 32 countries and find that strong shareholder protections and better access to stock market financing lead to substantially higher long-run rates of R&D investment, particularly in small firms, but are unimportant for fixed capital investment. Credit market development has a modest impact on fixed investment but no impact on R&D. These findings directly connect law and stock markets with innovative activities key to economic growth and show that legal rules and financial developments affecting the availability of external equity financing are particularly important for risky, intangible investments not easily financed with debt.

Keywords: Financial development, Investor protection, Stock markets, R&D, Innovation, Economic growth

JEL Classification: O16, O30, G32, K2

Suggested Citation

Brown, James R. and Martinsson, Gustav and Petersen, Bruce Clayton, Law, Stock Markets, and Innovation (April 30, 2012). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2093354

James R. Brown (Contact Author)

Iowa State University - Department of Finance ( email )

Ivy College of Business
Ames, IA 50011
United States
5152944668 (Phone)

Gustav Martinsson

Royal Institute of Technology (KTH) - Department of Industrial Economics and Management (INDEK) ( email )

Stockholm, 100 44
Sweden

HOME PAGE: http://https://www.kth.se/profile/gusma

Stockholm School of Economics - Stockholm School of Economics - Swedish House of Finance, Students ( email )

111 60 Stockholm
Sweden

Institute for Financial Research (SIFR) ( email )

Drottninggatan 89
SE-113 59 Stockholm, SE-113 60
Sweden

Bruce Clayton Petersen

Washington University in St. Louis - Department of Economics ( email )

One Brookings Drive
St. Louis, MO 63130
United States
314-935-5643 (Phone)

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