Misvaluation and Corporate Inventiveness

68 Pages Posted: 28 Dec 2017

See all articles by Ming Dong

Ming Dong

York University - Schulich School of Business

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Siew Hong Teoh

University of California, Irvine - Accounting Area

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Date Written: December 2017

Abstract

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.

Suggested Citation

Dong, Ming and Hirshleifer, David A. and Teoh, Siew Hong, Misvaluation and Corporate Inventiveness (December 2017). NBER Working Paper No. w24142, Available at SSRN: https://ssrn.com/abstract=3092990

Ming Dong (Contact Author)

York University - Schulich School of Business ( email )

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David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States

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Siew Hong Teoh

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States

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