NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Policy Uncertainty and Innovation: Evidence from IPO Interventions in China

Lin William Cong, Sabrina T. Howell

NBER Working Paper No. 24657
Issued in May 2018, Revised in April 2020
NBER Program(s):Corporate Finance, Productivity, Innovation, and Entrepreneurship

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.

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Document Object Identifier (DOI): 10.3386/w24657

 
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