Stock Market Overvaluation, Moon Shots, and Corporate Innovation (Presentation Slides)

54 Pages Posted: 3 Jan 2018 Last revised: 26 May 2018

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

Date Written: May 1, 2018

Abstract

These are the presentation slides for the working paper. We test how market overvaluation affects corporate innovation. Estimated stock overvaluation is very strongly associated with R&D, innovative output, and measures of innovative novelty, originality, and scope. R&D is much more sensitive than capital investment to overvaluation. Misvaluation affects R&D more via a non-equity channel than via equity issuance. We document how the sensitivity of R&D and innovative outcomes to misvaluation depends on growth, overvaluation, and turnover. 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 ‘moon shots.’ The paper is available at https://ssrn.com/abstract=2878418.

Keywords: stock market misvaluation, innovation, R&D, patents, behavioral finance, market efficiency

JEL Classification: G14, G32, O32

Suggested Citation

Dong, Ming and Hirshleifer, David A. and Teoh, Siew Hong, Stock Market Overvaluation, Moon Shots, and Corporate Innovation (Presentation Slides) (May 1, 2018). Available at SSRN: https://ssrn.com/abstract=3094381 or http://dx.doi.org/10.2139/ssrn.3094381

Ming Dong

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext. 77945 (Phone)
416-736-5687 (Fax)

David A. Hirshleifer (Contact Author)

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

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Siew Hong Teoh

University of California - Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States

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