Market Manipulation and Innovation

65 Pages Posted: 21 Mar 2016 Last revised: 7 Apr 2019

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Shan Ji

Capital Markets CRC

Rejo Peter

York University - Schulich School of Business

Monika Tarsalewska

University of Exeter Business School

Date Written: January 7, 2019

Abstract

We study the impact of suspected market manipulation, including end-of-day manipulation and insider trading around information leakage events, on patents based on a sample of 9 countries spanning the years 2003-2010. The data indicate that end-of-day dislocation mitigates the number of patents and citations received, due to the associated short-termism of the firm’s orientation, long-term harm to a firm’s equity values, and commensurate reduced incentives for employees to innovate. Unlike prior literature that shows a negative relation between patenting and liquidity in the U.S. in an earlier time period, we observe a robust and significantly positive effect of liquidity on patenting in the U.S. and across the 9 countries in our sample over each of the 8 years studied. The positive effect of liquidity on innovation, however, is mitigated by the harmful presence of end-of-day dislocation. The data also confirm the importance of country-level factors such as intellectual property rights across countries that encourage patenting. Our findings are robust to numerous robustness checks on subsamples of the data, propensity score matching analyses, difference-in-differences tests for firms with and without dislocation, among other things.

Keywords: Market Manipulation; Financial market misconduct; End-of-Day Dislocation, Insider Trading; Patents; Innovation; Intellectual Property Rights; Law and finance

JEL Classification: G14; G18; O30

Suggested Citation

Cumming, Douglas J. and Ji, Shan and Peter, Rejo and Tarsalewska, Monika, Market Manipulation and Innovation (January 7, 2019). Available at SSRN: https://ssrn.com/abstract=2752236 or http://dx.doi.org/10.2139/ssrn.2752236

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Shan Ji

Capital Markets CRC ( email )

GPO Box 970
55 Harrington Street
Sydney, NSW 2001
Australia
+61280884237 (Phone)

Rejo Peter (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Monika Tarsalewska

University of Exeter Business School ( email )

XFI building, Streatham Campus
Rennes Drive
Exeter, Devon EX4 4ST
United Kingdom

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