Policy Uncertainty and Innovation: Evidence from IPO Interventions in China

74 Pages Posted: 6 Feb 2017 Last revised: 17 Dec 2019

See all articles by Lin William Cong

Lin William Cong

Cornell University

Sabrina Howell

New York University (NYU) - Leonard N. Stern School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2019

Abstract

Public equity is an important source of risk capital, especially in China. The Chinese government has occasionally suspended IPOs, exposing firms already approved to IPO to indeterminate listing delays. The temporary bar on going public curtails timely access to equity capital of affected firms and increases uncertainty. We show that suspension-induced delay reduces corporate innovation activity both during the delay and for years after listing. Negative effects on tangible investment and positive effects on leverage are temporary, consistent with financial constraints during the suspensions being resolved after listing. Our results suggest that predictable, well-functioning IPO markets are important for firm value creation. They demonstrate that corporate innovation is cumulative, and is negatively affected by policy uncertainty.

Keywords: Listing Suspensions, Innovation, Patent, IPO, China, Entrepreneurship

JEL Classification: L22, L26, G30, G32

Suggested Citation

Cong, Lin and Howell, Sabrina, Policy Uncertainty and Innovation: Evidence from IPO Interventions in China (December 1, 2019). Chicago Booth Research Paper No. 146. Available at SSRN: https://ssrn.com/abstract=2911221 or http://dx.doi.org/10.2139/ssrn.2911221

Lin Cong (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.linwilliamcong.org

Sabrina Howell

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
212-998-0913 (Phone)

HOME PAGE: http://www.sabrina-howell.com

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