Journal of Financial and Quantitative Analysis Vol. 58 No. 6 2023
The Real Effects of Equity Markets on Innovation
open access
Abstract
In theory, financial markets promote innovation by selectively allocating capital to high-quality projects. In this article, I show that equity markets can also inhibit innovation. In public firms, I find that short-term equity market declines cause pharmaceutical companies to abandon early-stage drug developments, irrespective of drug quality or changes in a firm’s stock price. I show that financing constraints drive this behavior, highlighting that even short-term market fluctuations can have long-term effects on pharmaceutical innovation and prevent potentially life-saving drugs from progressing to the market.
- DOI
- 10.1017/s0022109022001053
- Volume
- 58
- Issue
- 6
- Pages
- 2522-2552
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref