Essay I

Prudent Innovation: How Firm Overvaluation at IPO Shapes Innovation

In this study, I examine how firm overvaluation at IPO affects firm innovation after its public offering. Using propensity score matching and differences-in-differences research designs, I show that firms that are overvalued at IPO produce more internal patents and acquire more external patents than their non-overvalued counterparts in the years following an IPO. Furthermore, I find that the innovation of these overvalued firms becomes more exploitative in nature and is accompanied by a lower level of R&D intensity post-IPO. Collectively, the results suggest that firms that are overvalued at IPO adopt a more prudent innovative strategy, which attempts to balance long term innovative growth prospects by...[ Read more ]

Essay I

Prudent Innovation: How Firm Overvaluation at IPO Shapes Innovation

In this study, I examine how firm overvaluation at IPO affects firm innovation after its public offering. Using propensity score matching and differences-in-differences research designs, I show that firms that are overvalued at IPO produce more internal patents and acquire more external patents than their non-overvalued counterparts in the years following an IPO. Furthermore, I find that the innovation of these overvalued firms becomes more exploitative in nature and is accompanied by a lower level of R&D intensity post-IPO. Collectively, the results suggest that firms that are overvalued at IPO adopt a more prudent innovative strategy, which attempts to balance long term innovative growth prospects by signaling sustained future growth through increased patent output, and short-term performance imperative by avoiding unnecessary risks through exploitative innovation.

Essay II

Effect of Accounting Financial Experts on Innovation in Newly IPO firms and the Mediating Role of Real Earnings Management

Accounting financial experts (AFEs) on corporate boards play an important role in board governance. Beyond the positive effects shown by prior literature that AFE has on improved monitoring, my study attempts to highlight the direct and indirect consequences of AFE on innovation. Analyzing five-years panel data of innovative firms that performed an IPO during the post-SOX period of 2004-2010, I document a negative direct association between AFE on boards and future corporate innovation as measured through patenting outcomes (patent quantity and quality). Additionally, I also find evidence that real earnings management (REM) mediates this relationship. Using path analysis, I find that high AFE power on boards results in firms being more likely to engage in discretionary R&D cuts for the purpose of manipulating earnings to achieve financial targets, and that such REM related R&D cuts ultimately have a negative effect on innovation. Collectively, my study brings to light the adverse direct and indirect effects that AFE has on firm’s innovative activity in newly IPO firms.