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Does innovation success reduce the cost of financing? Evidence from private investments in public equity

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  • Liu, Yini

Abstract

This paper investigates the relation between a firm's innovation performance and the cost of financing in private investments in public equity (PIPEs). Using patent-based metric data, I find that innovative firms issue securities in private equity placements at a 5.4% lower discount than non-innovative firms. The negative effect of innovation performance on PIPE discounts is more pronounced for firms in R&D intensive industries and firms with higher stock market illiquidity. Channel tests show that innovative firms are more likely to be led by strategic investors who are willing to pay a higher price to support innovative issuers. The results are robust to alternative methods that mitigate endogeneity issues.

Suggested Citation

  • Liu, Yini, 2023. "Does innovation success reduce the cost of financing? Evidence from private investments in public equity," Finance Research Letters, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322005554
    DOI: 10.1016/j.frl.2022.103378
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    More about this item

    Keywords

    Innovation; Private investments in public equity (PIPEs); Private equity placements;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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