Stock market mispricing and firm innovation based on path analysis

Based on a sample of Listed Companies in China between 2007 and 2018, this paper analyzes the impact of stock market mispricing on company?s innovation. The results demonstrate that when the stock price is overvalued, a company?s innovation investment will be higher, that is, overvaluation by the stock market is significantly positively related to firm innovation. In the path analysis, this paper finds that about 10% (RII, RVI, MPI) or 20% (MFFLOW) influence of stock mispricing on enterprise innovation is from financing demand. Further, this paper finds that the level of firm growth and stock turnover play a moderating role in the relationship between them. The conclusions of this paper are robust after a series of tests, such as instrumental variable, sub-sample test, twoway fixed effect and two-way cluster analysis.