How enterprise innovation shapes stock price informativeness in emerging economies: evidence from China

Stock price informativeness (SPI) is a key concept measuring market efficiency. Fostering innovation within enterprises can enhance SPI. We posit that this amplification in emerging markets is partly due to executive ownership and insider trading. Using a rational expectation framework, we define SPI as the Kolmogorov-Smirnov distance between expected and actual stock price distributions. We conduct benchmark and mediation effects regression analyses using OLS method with data from China, along with instrumental variable regression, and validate our findings using data from Thailand and Indonesia. We also perform grouping regression analyses on Chinese companies funded by developed economies. Our findings indicate that enterprise innovation boosts SPI, with executive ownership partially mediating this effect. However, this mechanism is insignificant in enterprises funded by developed countries listed in China. Thus, the impact of enterprise innovation on SPI varies, with executive ownership playing a key role in emerging economies. Improving investor protection, particularly for medium and small investors, is critical to reducing agency costs, enhancing market efficiency, and fostering social welfare.