NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Misvaluation and Corporate Inventiveness

Ming Dong, David Hirshleifer, Siew Hong Teoh

NBER Working Paper No. 24142
Issued in December 2017, Revised in February 2020
NBER Program(s):Corporate Finance, Productivity, Innovation, and Entrepreneurship

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.

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Document Object Identifier (DOI): 10.3386/w24142

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