Market value of innovation: An empirical analysis on China's stock market

In China, there is growing attention about innovation from both government and industry level, and the authorities also commit and emphasize the support of capital markets to industrial innovation. However, it's not clear whether China's capital markets have positive responses to enterprises' innovation input. Such issues have been studied a lot based on US and European database; nevertheless, few researchers investigate the market value of Chinese firms' R&D. In this paper, we use constructed panel dataset from three representative stock markets in China and then use intangible assets increment as innovation input indicator to examine the innovation performance in both manufacturing and service industries. By comparing the results of different stock markets, we find out the effect of R&D investment and increasing R&D input to market value is insignificant in all three markets, which may result from the weak protection for minority investors and loose regulation of information disclosure. Different constructions of intangible assets of listed firms on Main Board Market and Growth Enterprise Market account for market's relatively low efficiency to reflect real value of R&D investment. On industry-level, we conclude that R&D investment in both service and manufacturing sector contributes positively to market performance, and R&D investment in service industry shows stronger and more significant linkage to market value than manufacturing industry.