Abstract
This study addresses the signaling power of corporate innovation indicators in the IPO market. Innovation measures can convey considerably different signals to public investors, depending on whether they quantify the firm’s commitment in innovative inputs, as in the case of R&D investments, or achieved outputs, as in the case of patents. This study aims at disentangling such effects. Using a sample of 382 high-tech entrepreneurial firms going public in Europe during 1998–2003, this paper studies the impact of a firm’s R&D intensity and number of patents on stock liquidity. Results reveal that IPO firms with larger R&D investments benefit from greater liquidity in the aftermarket, while the size of the patent portfolio does not exert any significant effect. This suggests that investors tend to participate more in IPOs by firms embedding greater innovation potential, as suggested by their level of R&D investments, while the number of patents does not drive their behavior.
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Notes
- 1.
SMEs are defined according to the definition of the European Commission as firms with sales inferior to 50 million euros at the IPO. The industry classification is the official one adopted by the European stock exchanges, namely the ICB—Industry Classification Benchmark. The EURIPO database is managed by University of Bergamo (www.euripo.it) and contains data on more than 5,000 companies that went public in Europe since 1985. For a description of the database see Vismara et al. (2012). I focus on the four largest economies in Europe, namely Germany (Deutsche Börse), the United Kingdom (London Stock Exchange), France (Euronext) and Italy (Borsa Italiana).
- 2.
According to the EU definition of SME, only companies with (pre-IPO) sales lower to 50 million euros are selected. As a consequence, the average market size in this sample is higher for industries with high relevance of intangible as-sets, such as IT and biotech, and lower for machinery and electronics. This is due to the higher price-to-sales ratio in more intangible industries. Similar considerations can be drawn for the market-to-book ratio.
- 3.
University-based firms are identified as in Bonardo et al. (2010), based on information reported in the prospectus. Companies that were developed by faculty members based on their research, or companies created to capitalise on research carried out in universities, are considered as affiliated with universities.
- 4.
Firm size is measured by the natural logarithm of market capitalization at the IPO; firm age is measured by the natural logarithm of company’s years since incorporation at the IPO; firm profitability is measured by return on assets at the IPO; firm leverage is measured by the natural logarithm of the ratio between debt and total assets at the IPO.
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Signori, A. (2016). Signaling Through Innovation in IPOs. In: Audretsch, D., Lehmann, E., Meoli, M., Vismara, S. (eds) University Evolution, Entrepreneurial Activity and Regional Competitiveness. International Studies in Entrepreneurship, vol 32. Springer, Cham. https://doi.org/10.1007/978-3-319-17713-7_21
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