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Housing price appreciation, investment opportunity, and firm innovation: Evidence from China

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  • Rong, Zhao
  • Wang, Wenchun
  • Gong, Qiang

Abstract

The impact of housing price appreciation on firm innovation may be negative. Housing price appreciation generates real estate investment opportunities with high returns, making manufacturing firms more likely to diversify into the real estate industry. With limited resources, once investing in real estate development, these firms will invest less in innovation. By examining manufacturing firms in China for the period 1999–2007, we provide evidence by finding that housing price appreciation negatively influenced manufacturing firms’ innovation propensities. Additionally, we further explore the underlying mechanism by examining the likelihood of listed firms’ diversification into the real estate industry, and how the diversification influenced their patenting. Consistent with the investment opportunity hypothesis, we find that (1) housing price appreciation stimulated firms to enter the real estate industry, and a firm's invention patenting was negatively influenced subsequent to its real estate diversification; (2) the negative effect was more pronounced where housing price growth rates were higher.

Suggested Citation

  • Rong, Zhao & Wang, Wenchun & Gong, Qiang, 2016. "Housing price appreciation, investment opportunity, and firm innovation: Evidence from China," Journal of Housing Economics, Elsevier, vol. 33(C), pages 34-58.
    • Handle: RePEc:eee:jhouse:v:33:y:2016:i:c:p:34-58
    DOI: 10.1016/j.jhe.2016.04.002
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    More about this item

    Keywords

    Housing price appreciation; Firm innovation; Diversification; China;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • P20 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - General
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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