The Effects of GEM Firms' IPO on Their R&D Investment

Abstract

Abstract:

In this paper, we adopt a dynamic perspective to analyze whether a company's IPO will affect its R&D investment. Specifically, we use China Growth Enterprise Market (GEM) companies as our sample with small-medium size main board companies as matching sample and conduct an empirical analysis based on a Difference-In-Difference (DID) research design. Our results show that there is a negative relationship between IPO and R&D expenditures. Agency issue and short-termism pressure are the important reasons for the above findings. We also find that post-IPO firms' growth strategy relies more on external merger and acquisitions than on internal innovation input. The net effect of IPO on a firm' R&D investments is negative as the costs may be larger than the benefits from IPO. The results add more evidence on the research of the economic consequences of IPO and long-run performance and enrich the literature regarding firms' innovation behaviors.

Key words: IPO, R&D investment, agency issue, corporate myopia

Li Danmeng, Sun Shuwei, Yan Endian. The Effects of GEM Firms' IPO on Their R&D Investment[J]. , 2019, 31(11): 115-127.

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