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Corporate innovation strategy and stock price crash risk

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  • Jia, Ning

Abstract

We examine the association between corporate innovation strategy and future stock price crash risk. Using a large sample of US firms for the period 1992–2012, we find that exploration-oriented (exploitation-oriented) firms are more (less) prone to stock price crash risk. An examination of underlying mechanisms suggests that compared with exploitative firms, exploratory firms incur a higher failure-to-success ratio and are less likely to disclose interim negative news about their innovation projects. The documented relationships are stronger for firms with more severe agency problems and lower governance quality. Our findings advance the understanding of the capital market consequences of corporate innovation strategy and major catalysts for stock price crash risk.

Suggested Citation

  • Jia, Ning, 2018. "Corporate innovation strategy and stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 53(C), pages 155-173.
    • Handle: RePEc:eee:corfin:v:53:y:2018:i:c:p:155-173
    DOI: 10.1016/j.jcorpfin.2018.10.006
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    More about this item

    Keywords

    Innovation strategy; Exploration; Exploitation; Crash risk; Agency problems; Governance quality;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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