Policy Uncertainty and Innovation: Evidence from IPO Interventions in China

71 Pages Posted: 6 Feb 2017 Last revised: 20 Apr 2020

See all articles by Lin William Cong

Lin William Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management

Sabrina T Howell

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

Date Written: March 2020

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 increases uncertainty about access to public markets for affected firms. 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 T, Policy Uncertainty and Innovation: Evidence from IPO Interventions in China (March 2020). 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 - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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

Sabrina T 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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