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.