Research On The Impact Of Stock Liquidity On Firm Innovation Investment

Stock market has become a crucial financing channel for firms nowadays.As an important dimension of the characteristics of stock market,how will stock liquidity affect firm innovation investment? What are the underlying mechanisms? Those questions need to be explored further.In this context,this paper analyses the relationship between stock liquidity and firm innovation investment.Based on the firm innovation theory,stock market liquidity premium theory,agency theory and related literatures,through theoretical analysis and logical reasoning,this paper finds that the stock liquidity affects the firm innovation investment,and the underlying mechanisms may include two types of agency costs and financing constraints.Using Chinese non-financial A-share listed companies which had disclosed R&D expenditures in year 2006 to 2016 as the study sample,this paper investigates the effect of stock liquidity on firm innovation investment.The result shows that stock liquidity has a significant and positive effect on the firm innovation investment.My finding is supported by additional tests.Further analysis shows that stock liquidity improves firm innovation investment by increasing type-I agency costs and reducing financing constraints and type-II agency costs.This paper deepens the research on firm innovation investment from the perspective of market microstructure and has implications for the government to encourage investment in R&D and develop multi-tiered capital markets.