Innovations, Intellectual Property Protection, and Financial Markets: Evidence from China

Abstract

This study explores the interaction between innovations and financial markets using data of China that present significant geographic variations in development. Provincial banking development encourages local innovations, and provincial intellectual property (IP) protection raises the market values of local firms. Firm-level innovations have a positive effect on market valuation and predict stock returns. Moreover, provincial IP piracy deteriorates the market values of innovative local firms in high-tech industries.