The Real Effects of Equity Markets on Innovation

Mace, Chris

doi:10.1017/s0022109022001053

Cited by 7 publications

(1 citation statement)

References 43 publications

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“…A mutual influence between the firms and the tech sector emerged during the pandemic. Recently, Mace (2022) argued that despite theoretical financial models, capital markets prioritize and fund high-quality innovative ventures, stock markets can, conversely, hinder innovation. He observed that in public companies, momentary stock market downturns push pharmaceutical firms to withdraw from early-stage drug projects, regardless of the drug's potential or shifts in the company's stock value.…”

Section: Industry Background and Literature Reviewmentioning

confidence: 99%

Risk and return in the biotech industry

Bruneo,

Giacomini,

Iannotta

et al. 2023

IJPPM

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PurposeBiotech companies stand as key actors in pharmaceutical innovation. The high risk and long timelines inherent with their R&D investments might hinder their access to funding, potentially stifling innovation. This study aims to explore into the appeal of biotech companies to capital market investors, whose financial backing could bolster the growth of the biotechnology sector.Design/methodology/approachThis paper uses a dataset of 774 US publicly listed biotech firms to investigate their risk and return characteristics by comparing them to pharmaceutical firms and a sample of matched non-biotech R&D-intensive firms over the sample period 1980–2021. Tests show that the conclusions remain consistent across diverse methodological approaches.FindingsThe paper shows that biotech companies are riskier than the average firm in the market index but outperform on a risk-adjusted basis both the market and a matched group of R&D-intensive firms. This is particularly true for large capitalization biotech, which is also shown to provide a diversification benefit by reducing the downside risk in past crisis periods.Originality/valueThis paper provides insight relevant to the current debate about the overall performance of the biotech industry in terms of policy changes and their impact on small, early-stage biotech firms. While small and early-stage biotech firms are playing an increasing role in scientific innovation, this study confirms their greater vulnerability to financial risks and the importance of access to capital markets in enabling those companies to survive and evolve into larger biotech.

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Section: Industry Background and Literature Reviewmentioning

confidence: 99%

Risk and return in the biotech industry

Bruneo,

Giacomini,

Iannotta

et al. 2023

IJPPM

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Financial intermediation and the funding of biomedical innovation: A review

Lo¹,

Thakor

2023

Journal of Financial Intermediation

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Government Stock Purchase Undermines Price Informativeness: Evidence from China’s “National Team”

Dang¹,

Li²,

Wang³

2023

J. Financ. Quant. Anal.

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We use the 2015 Chinese stock market crash to study the effects of government stock purchases. The Chinese government purchased stocks to stabilize the markets through state-owned financial institutions known as the “National Team.” We find that the intervention led to reduced volatility and price informativeness. These impacts are driven by the disclosure of government portfolios. Consistent with investors having a stronger incentive to acquire government intervention information instead of fundamental news, we find reduced information production and information asymmetry following intervention disclosure. The article suggests that government stock purchases involve a trade-off between stability and informational efficiency.

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The Real Effects of Equity Markets on Innovation

Cited by 7 publications

References 43 publications

Risk and return in the biotech industry

Risk and return in the biotech industry

Financial intermediation and the funding of biomedical innovation: A review

Government Stock Purchase Undermines Price Informativeness: Evidence from China’s “National Team”

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