The Real Effects of Secondary Markets on Innovation

44 Pages Posted: 14 Mar 2019 Last revised: 6 Dec 2019

See all articles by Chris Mace

Chris Mace

University of Utah, David Eccles School of Business

Date Written: July 1, 2019

Abstract

I examine the direct effects of secondary markets on firm investment and innovation. I find that market downturns cause pharmaceutical companies to abandon early-stage drug developments irrespective of drug quality or future investment value. I show that financing constraints appear to drive this behavior. My results indicate that secondary markets have important feedback effects, distinct from information feedback channels, that permanently reduce innovation.

Keywords: Investment, Innovation, Market Downturns, Secondary Markets, Pharmaceutical Industry, Animal Spirits

JEL Classification: C26, D53, E44, G01, G14, G32, O16, O32

Suggested Citation

Mace, Chris, The Real Effects of Secondary Markets on Innovation (July 1, 2019). Available at SSRN: https://ssrn.com/abstract=3348102 or http://dx.doi.org/10.2139/ssrn.3348102

Chris Mace (Contact Author)

University of Utah, David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

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