The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
The paper analyses the effect of the stock market on firm innovation through the lens of initial public
offering (IPO) using uniquely matched Chinese firm-level data. We find that IPOs lead to an increase
in both the quantity and quality of firm innovation activity. In addition, IPOs expand a firm's scope
of innovation beyond its core business. The impact of IPOs on firm innovation varies across financial
constraints, corporate governance, and ownership structures. Our results further illustrate that IPOs
induce a firm to increase the number of inventors and enable better retention of existing inventors
after the IPO. Finally, we show that the enhanced innovation activity resulting from IPOs increases
a firm's Tobin's Q in the long run.