Real Asset Liquidity and Corporate Innovation

59 Pages Posted: 17 Feb 2015

See all articles by Henry Hongren Huang

Henry Hongren Huang

National Central University at Taiwan

Guan-Ying Huang

Southwestern University of Finance and Economics (SWUFE) - School of Finance

S. Ghon Rhee

University of Hawaii - Shidler College of Business; University of Hawaii - Department of Financial Economics and Institutions

Date Written: February 15, 2015

Abstract

We present a theoretical model and empirical evidences that liquid real asset, which is of high liquidation value, provides an alternative internal channel for supporting corporate innovations. We employ a simple two-period model in which existing assets can be liquidated or placed as collateral to raise funds to invest in innovation. Our model predicts that a firm’s real asset liquidity is positively associated with corporate innovations. Moreover, this positive effect is more profound for firms with fewer financial constraints and in a less competitive product market. We test these predictions by utilizing a novel real asset liquidity index and U.S. patent data from 1986-2006. We find robust evidence supportive of our theoretical predictions. Our results suggest that firms with higher asset liquidity are more likely to pursue technological innovation.

Keywords: Asset Liquidity, R&D, Innovation

JEL Classification: G34, O32

Suggested Citation

Huang, Henry Hongren and Huang, Guan-Ying and Rhee, S. Ghon, Real Asset Liquidity and Corporate Innovation (February 15, 2015). Asian Finance Association (AsianFA) 2015 Conference Paper. Available at SSRN: https://ssrn.com/abstract=2565376 or http://dx.doi.org/10.2139/ssrn.2565376

Henry Hongren Huang (Contact Author)

National Central University at Taiwan ( email )

No. 300, Zhongda Road
Chung-Li Taiwan, 32054
Taiwan

Guan-Ying Huang

Southwestern University of Finance and Economics (SWUFE) - School of Finance ( email )

Chengdu, 610074
China

S. Ghon Rhee

University of Hawaii - Shidler College of Business ( email )

2404 Maile Way
C-304, FEI/CBA
Honolulu, HI 96822
United States

University of Hawaii - Department of Financial Economics and Institutions ( email )

United States

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