NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Ming Dong

Schulich School of Business
York University
4700 Keele Street
Toronto, Ontario, CANADA M3J 1P3
Tel: 416/736-2100 Ext 77945

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Institutional Affiliation: York University

NBER Working Papers and Publications

December 2017Misvaluation and Corporate Inventiveness
with David Hirshleifer, Siew Hong Teoh: w24142
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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