Law, Stock Markets, and Innovation

Brown, James R.; Martinsson, Gustav; Petersen, Bruce C.

Download This Paper

Open PDF in Browser

Add Paper to My Library

Law, Stock Markets, and Innovation

Journal of Finance, Forthcoming

41 Pages Posted: 27 Jun 2012

See all articles by James R. Brown

James R. Brown

Texas A&M University - Department of Finance

Stockholm University - Stockholm Business School; Stockholm School of Economics - Stockholm School of Economics - Swedish House of Finance, Students; Royal Institute of Technology (KTH) - Department of Industrial Economics and Management (INDEK)

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: 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