Misvaluation and Corporate Inventiveness
Journal of Financial and Quantitative Analysis
67 Pages Posted: 3 Dec 2016 Last revised: 26 Jun 2020
Date Written: February 16, 2020
We test how market overvaluation affects corporate innovation. Estimated stock overvaluation is very strongly associated with measures of innovative inventiveness (novelty, originality, and scope), as well as R&D and innovative output (patent and citation counts). Misvaluation affects R&D more via a non-equity channel than via equity issuance. The sensitivity of innovative inventiveness to misvaluation is increasing with share turnover and overvaluation. The frequency of exceptionally high innovative inputs/outputs increases with overvaluation. This evidence suggests that market overvaluation may generate social value by increasing innovative output and by encouraging firms to engage in highly inventive innovation.
Keywords: Stock Market Misvaluation, Innovation, R&D, Patents, Behavioral Finance, Market Efficiency
JEL Classification: G14, G32, O32
Suggested Citation: Suggested Citation