Essays on corporate innovation
type: CreativeWork
description: In this dissertation, I explore the underlying mechanisms through which a firm innovates and invests in Research and Development (R&D). It consists of two essays. The initial essay investigates the effects of aggregate stock market liquidity on innovation at both the aggregate and firm levels for publicly traded firms in the U.S., and shows a significant and positive effect at both levels of aggregation. Next, the essay provides two underlying mechanisms through which aggregate stock liquidity enhances innovation. First, high stock market liquidity reduces the cost of raising external capital, making it easier for firms, especially for small firms and those with R&D investments, to issue equity and finance their innovations. Second, high stock market liquidity generates high firm valuation and reduces transaction costs, motivating large firms to buy the innovations of small firms through merger and acquisition activities. Overall, this essay documents that aggregate stock market liquidity plays a very important and positive role in enhancing aggregate innovation. The second essay examines how a firm makes investment decisions under uncertainty. Real option theory predicts an inverse relationship between corporate investment and uncertainty, because investment is (at least partially) irreversible and uncertainty increases the value of the option to wait. In contrast, the strategic growth option framework shows that uncertainty may encourage investment in growth options since the value of the option to wait is drastically eroded due to competition and an initial investment can confer greater capacity to take advantage of future growth opportunities. Consistent with the strategic growth option analysis, this essay documents that firms will invest more in R&D when facing high uncertainty. The reason is that R&D investments can potentially generate growth opportunities which enhance competitive advantages for firms in the future. The study further shows that the switch o…
abstract: In this dissertation, I explore the underlying mechanisms through which a firm innovates and invests in Research and Development (R&D). It consists of two essays. The initial essay investigates the effects of aggregate stock market liquidity on innovation at both the aggregate and firm levels for publicly traded firms in the U.S., and shows a significant and positive effect at both levels of aggregation. Next, the essay provides two underlying mechanisms through which aggregate stock liquidity enhances innovation. First, high stock market liquidity reduces the cost of raising external capital, making it easier for firms, especially for small firms and those with R&D investments, to issue equity and finance their innovations. Second, high stock market liquidity generates high firm valuation and reduces transaction costs, motivating large firms to buy the innovations of small firms through merger and acquisition activities. Overall, this essay documents that aggregate stock market liquidity plays a very important and positive role in enhancing aggregate innovation. The second essay examines how a firm makes investment decisions under uncertainty. Real option theory predicts an inverse relationship between corporate investment and uncertainty, because investment is (at least partially) irreversible and uncertainty increases the value of the option to wait. In contrast, the strategic growth option framework shows that uncertainty may encourage investment in growth options since the value of the option to wait is drastically eroded due to competition and an initial investment can confer greater capacity to take advantage of future growth opportunities. Consistent with the strategic growth option analysis, this essay documents that firms will invest more in R&D when facing high uncertainty. The reason is that R&D investments can potentially generate growth opportunities which enhance competitive advantages for firms in the future. The study further shows that the switch o…
author: Vo, Lai Van
keywords: patent, R&D, uncertainty, stock market liquidity, patent citation, merger and acquisition, idiosyncratic volatility, growth options, debt issuance, equity issuance, aggregate innovation, corporate investments
date published: 2014-01-01T08:00:00Z
date modified: 2026-07-24T02:57:39Z
provider: Lousiana State University
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: Finance (Business Administration)

PropertyValue
property ID: DOI
value: 10.31390/gradschool_dissertations.407