Innovation Strategy, Corporate Performance And Capital Structure

Firms that operate under different strategies will choose different capitalstructures. In this paper, we use financial data of 47 companies which areregistered in Chinese Mainland but listed in Hongkong(H) securities market andfind that firms competing on the basis of innovation would make low leverage astrategic priority. In other words, firms pursuing innovation would like tomaintain financial slack through equity financing. If a firm doesn't maintainsufficient financial slack, then it will fail in implementing the strategy premisedon innovation and thus display bad performance. Our empirical analysisindicates that perfect capital market is important to the firms pursuinginnovation as their strategies. We should develop our capital market to helpthose firms get good performance.