Economic Policy Uncertainty,Stock Price Sensitivity And Corporate Innovation

Economic policy uncertainty,a changing external environment will bring higher challenge make it to corporate on innovative decisions.In order to seek self-improvement and development,enterprises will strength innovation when economic policy uncertainty goes up,to enhance their anti-risk ability and competitive advantage.Therefore,economic policy uncertainty will encourage corporates to innovate.However,this incentive will be different on account of different characteristics and responses to the risk.This study targets on all those Shanghai-Shenzhen A-share listed companies in China from the year of 2008 to 2017,and builds a theoretical model framework and based on the assumption of maximization of corporate shareholders’ equity.The Fama-French three-factor model is also applied to measure the stock price sensitivity of enterprises when they are shocked by the economic policy uncertainty.The empirical test shows that the economic policy uncertainty will encourage enterprises to carry out innovation activities,which is proved when enterprises’ investment and output on innovation increases with the rising of economic policy uncertainty.This incentive exists in diverse types of innovation output.The stock price sensitivity of corporate asymmetrically adjusts the relationship between the two,and it varies among companies that are affected by different risk shocks.The specific performance is: when the economic policy uncertainty cause positive influence on stock price,it’s incentive effect on corporates’ innovative activities will remain the same.However,when the influence turns negative for stock price,its incentive effect on such enterprises’ innovation activities will be strengthened.This strengthening effect is only reflected in the innovation output of corporate,but the impact on innovation investment is not obvious.It is further found that the strengthening effect on innovation is centralized in state-owned enterprises and enterprises with high concentration of equity,but without significant weakening effect on other enterprises.The contributions of this research are showed as follows: First,this paper tries to supplemented the theorical evidence in the filed based on the assumption of the maximization of corporate shareholders’ equity and derive the positive relationship between economic policy uncertainty and corporate innovation with existing theoretical model framework and evidence.Theoretical evidence in the field.Second,this paper finds uses the Fama-French three-factor model to construct the stock price sensitivity of each corporate to economic policy uncertainty.This paper also measures the difference among corporate in the impact of economic policy uncertainty.Third,the paper further finds that the relationship between the economic policy uncertainty and corporate innovation is influenced by the stock price sensitivity as a react to face the economic policy uncertainty.