A comparative study of the innovation investment of enterprises listed in NEEQ and GEM

ZHANG Xin-Dong; XUE Hai-Yan

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Science Research Management ›› 2021, Vol. 42 ›› Issue (2) : 161-170.

A comparative study of the innovation investment of enterprises listed in NEEQ and GEM

Zhang Xindong¹, Xue Haiyan²

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Abstract

Innovation is the first driving force for enterprises to achieve high-quality development, and is a key factor for companies to survive in the rigorous market competition. Being development pillar of the national economy, China′s small and medium-sized enterprises (SMEs) are still experiencing the low-level competition and thus the profitability and risk management improvement based on independent innovation would be extremely essential. However, financing innovation tends to be quite challenging for SMEs due to the long-term, uncertainty and information asymmetry characteristics embedded in innovative activities. It has been unanimous in the literatures that a well-developed equity market shall be featured with financing cost reduction, the resource allocation efficiency improvement, manager supervision enhancement, as well as information transparency development, and thus it can promote enterprise innovation. Nevertheless, financial development beyond a certain frontier is not favored for innovative investment decisions. In China′s multi-level capital market system, both of the new third board market (NEEQ) and the growth enterprises market (GEM) are important equity markets for small and medium-sized innovative and entrepreneurial enterprises. Although each has its pros and cons because the two markets are at different levels and with large development gap, the mission of activating market innovation is the same. So, are the two markets promoting innovation investment in SMEs meeting regulators′ expectations? If not, what is the mechanism by which the gap is created? These two issues remain being insufficient understood questions.

On this basis, using the panel data of 844 companies listed on innovation layer of NEEQ and 669 companies listed on GEM in 2013-2017, this paper employs the basic regression model and treatment effect model to test the difference of innovation investment behavior of enterprises in different capital markets. Against the backdrop of "managerial myopia" and "stock liquidity", we intend to explore the possible mechanism. The study delivers the following results: (1) The innovative investment of NEEQ firms is significantly higher than that of GEM firms. The result indicates that the current institutional design of the innovation layer of NEEQ is more supportive to the innovation and development of SMEs; (2) From an intra-firm perspective, the lower managerial myopia of NEEQ firms plays a partially mediating role in facilitating the above relationships. It can be argued that, compared with the executives of GEM firms, the managers of innovation layer firms are under less pressure from both internal and external sources and can focus more on the long-term development of their firms；(3) Considered from the external perspective, the lower stock liquidity of NEEQ inhibits the above relationship. The low liquidity of the market inhibits the entry of large traders, and without the oversight of external major shareholders, managers may reduce long-term innovation activities for their own short-term interests. This paper uses fixed effects model, treatment effect model and propensity score matching to deal with endogenous problems.

This paper not only sheds new insights on how the multi-level capital market servicing enterprise innovation, but also provides deep understanding on the mechanism of the influence of different internal and external factors on enterprise innovation investment. The relevant research findings will help investors make more rational decisions and assessments of the innovation activities and investment values of enterprises on the GEM and NEEQ. More importantly, our results can also provide empirical evidence for policymakers to make more targeted institutional arrangements for capital market services and enterprise innovation.

Key words

capital market / innovation investment / managerial myopia / stock liquidity

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Zhang Xindong, Xue Haiyan. A comparative study of the innovation investment of enterprises listed in NEEQ and GEM[J]. Science Research Management. 2021, 42(2): 161-170

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