Study On R&D Investment,Product Market Competition,and IPO Of High-tech Enterprises

In recent years,high-tech enterprises have been the main force of China's innovation activities and the engine of sustainable economic growth.These enterprises are always in the growing stage of their industry,with small scale and short established period.With considerable R&D investment and high uncertain risk,internal financing is insufficient enough to support their research and development activities,so they tend to raise funds from the capital market.When the enterprise choose to finance form from the capital market,they have to publicly disclose information about enterprise quality and R&D project to the market,but it may attract firm's potential competitors to jump in and invest in the same kind of R&D,thereby triggering an R&D "arm race" that will negatively impact the firm's expected cash flow distribution.So high-tech enterprises need to choose the optimal financing method by trading off between financing by public and disclosing informing to the competitors.Furthermore,after IPO,high-tech enterprises face fierce market competition and are forced to disclose the information.How to choose the investment strategy and cash holdings are also worth of studying.Based on the analysis framework of Thakor and Lo(2015),this paper constructs three-phase investment decision-making model of an R&D project.And on the basis of this model,this paper analyses the enterprise's trade-off between reducing the adverse selection between investors and the firm and attracting the competitors jumping in to choose the optimal financing way that minimizing the information disclosure and maximizing the firm's value,where firms need to raise large amounts of capital from the open market to invest in an R&D project with long-term staged investments and low probabilities of success.From the conclusion of the model,we find that firms with high upside potential profit and low moral hazard problem tend to IPO to finance for an R&D project,that is to say,high-tech enterprises prefer to IPO facing considerable R&D investment needs.According to the conclusion of the model,theoretical analysis and characteristics of high-tech enterprises in China,this paper puts forward three testable hypotheses about the IPO decision-making of high-tech enterprises:there is a certain positive relationship between high-tech enterprises' IPO financing amount and post-IPO R&D investment;After IPO,increasing product market competition will make high-tech enterprises increase R&D investment and reduce investment in assets-in-place that support existing products;As competition increases,firms will carry more cash.In the empirical research,this paper selects enterprises listed on GEM from October 23rd 2009 to October 30th 2010 as the objects of study,and choose analysis variables,such as the degree of product market competition,the actual amount of financing,investment in assets-in-place that support existing products,R&D investment and cash holdings,to test the hypotheses of this research.Through the empirical test,this paper draws the following conclusions:first,the actual amount of financing of high-tech enterprises and post-IPO R&D expenditure have significant positive relationship,but this relationship lasted only three years;second,as competition increases,investment in assets-in-place declines and R&D investment increases after high-tech enterprises IPO,which suggests that facing fierce competition,firms are also willing to innovate to gain the market share;finally,firm's post-IPO cash holdings have a significant positive correlation with the degree of product market competition,which shows that high-tech listed firms tend to hold more cash,prepared for future R&D investment.