Innovation Input and Firm Value: Based on the Moderating Effect of Internal Control

Abstract

Using the data of Chinese A-share listed firms with non-zero innovation investment between 2007 and 2017, this paper links the value relevance of innovation investment with internal control from the perspective of operating performance and market value, respectively. This paper empirically verifies that internal control significantly increases the value relevance of innovation input, that is, the better the internal control, the more innovation investment contributes to the operating performance and market value of a firm. Then, based on the potential mechanisms of alleviating agency problems and conducting better risk management, further investigation in this paper also indicates that internal control’s moderating effect on the value relevance of innovation input is more prominent for firms with relatively more severe agency problems and for expensed R&D expenditure which represents the part of innovation investment with higher uncertainty.

The Effect of Big Data on Firm Value: The Mediation Roles of Innovation and Financial Performances

“…As a result, experts in asset pricing and corporate finance frequently examine the factors that determine innovation and how they impact firm valuation, accounting performance, and stock returns (cooper et al, 2022). Numerous empirical studies show a favorable correlation between innovation and operating performance at the firm level, supporting the value relevance of innovation contribution from the standpoint of operating performance (Ma et al, 2022). In the modern business environment, innovation encompasses not just a process but also a variety of new elements that take into account changing consumer preferences, market and industry trends, and demographics.…”

“…Value relevance of innovation input is defined as the relationship between the innovation input and its future benefits. This relationship can be measured from the standpoint of a firm's operating performance, such as profits, productivity, or growth rate, as well as from the standpoint of a firm's market value, stock return, or stock price (Ma et al, 2022). By utilizing resources more effectively, a firm's innovation activities may make it easier for them to acquire resources and reduce their overall expenditures.…”