Research on the Impact of Stock Information Content on Enterprise Innovation

Using the sample data of Shanghai and Shenzhen A-share listed companies, this paper empirically tests the impact of stock price information content on corporate innovation and its internal mechanism. The study found that the information content of stock prices has a significant role in promoting corporate innovation. An increase of 1 percentage point in the information content of stock prices will increase the number of patent applications by companies in the next year by 1.13 percentage points, and this effect is demonstrated in private enterprises and high-tech companies. Further analysis shows that the internal mechanism of this effect is: the increase in the stock price information content allows managers to obtain more useful information from the stock price, which is conducive to the development of innovative activities; the increase in the stock price information content promotes stock liquidity, which has helped strengthen the institutional investor supervision mechanism and improved the internal innovation incentives of enterprises.


Introduction
One of the basic functions of the capital market is to use changes in stock prices to aggregate and reflect a variety of information. Changes in stock prices not only reflect the information that managers have about the company, but also reflect investors' views and private information on the fundamentals of the company and the industry in which they operate. This information can provide a valuable reference for managers to make decisions and guide managers to effec-tively allocate corporate resources. This function of the capital market is called the stock price feedback effect. With the implementation of the Securities Law in 1999, the completion of the share-trading reform in 2006, and the introduction of short-selling mechanisms such as stock index futures, margin trading, and options in recent years, the information efficiency of my country's stock market has also improved significantly. In this context, from the perspective of feedback effects, studying the impact mechanism and effect of the capital market on the decision-making of listed companies has important practical significance for improving the efficiency of the stock market, optimizing the decision-making of listed companies, and deepening the role of the capital market in serving the real economy.
As an important part of the financial system, the stock market has always been concerned by the industry and academia for its role in corporate innovation. Existing research can be divided into "financing theory" and "incentive theory", and pay less attention to the "feedback effect" of the stock market on corporate innovation. In addition to providing funds and forming incentives for corporate innovation, the stock market can also provide information feedback. The information feedback function means that the stock market gathers and transmits all kinds of information through the stock price. When the stock price contains the private information of external investors that the corporate manager does not know beforehand, the manager can obtain new information from the company's stock price changes to adjust and optimize the company's resource allocation and R&D investment decision. Because the failure rate of corporate innovation is higher than that of traditional investment projects, managers must use useful information in stock prices. This paper uses the patent application database of the CSMAR Database and the sample data of listed companies in the A-share market from 2009 to 2018 to empirically test the feedback effect of stock price information content on corporate innovation and its internal mechanism. The research contributions of this paper are shown in two points: First, the research on the stock market feedback effect at home and abroad mainly focuses on corporate investment behavior, and there is little research on corporate innovation; second, this paper further explores the difference in the impact of stock price information on corporate innovation qualitative and internal mechanism. Based on the previous views, this paper mainly carries out research, carries out theoretical analysis and research hypothesis, and verifies the hypothesis through empirical analysis and draws the final conclusion.  Hu Hengqiang et al. (2020) found that endogenous financing and equity financing can significantly promote enterprise innovation investment. Ferreira et al. (2104) found the "incentive theory" that the decentralization of control and the change of governance mechanism caused by the listing of enterprises will reduce the innovation activities of enterprises. After a company is listed, managers are under pressure from the capital market and tend to choose traditional investment projects with stable cash flow and relatively low risks, making it easier to convey good corporate information to investors instead of choosing uncertain returns, long periods, and high-risk innovative projects. Bernstein (2015) found that a large number of inventors left the company after the company went public, which reduced the quality of internal innovation of the company, but after the company went public, it attracted new human capital, thereby obtaining external innovation and changing the company's innovation strategy. Kong Dongmin et al. (2015) used total factor productivity to measure innovation efficiency. Based on the data of listed companies in China, they found that after companies went public, total factor productivity declined. They explained from the perspective of "incentive theory" and found that manager incentives, information disclosure incentives and the changes in inventor incentives have led to a decline in corporate innovation behavior. Fang et al. (2014) found that the increase in stock liquidity significantly reduced the innovation output of enterprises. The reason is that the increase in liquidity leads to an increase in the risk of hostile takeovers and the emergence of more institutional investors who are not actively collecting information and monitoring.

The Feedback Effect of the Stock Market on Corporate Decisions
A series of domestic and foreign documents have studied the feedback effect of the stock market, mainly focusing on the analysis of the information content of the stock price on corporate investment behavior. Dow and Gorton (1997)

Theoretical Analysis and Research Hypothesis
This article believes that the information content of stock prices affects corporate innovation through two mechanisms: strengthening manager learning and improving stock liquidity.

Manager Learning Mechanism
One of the basic functions of the stock market is to optimize the allocation of resources so that the funds of external investors can flow to companies with better business performance and more promising future development. To achieve this optimization function, the premise is that the stock market can gather and transmit a variety of information through stock prices. When the stock price contains private information of external investors that the manager does not know, the manager can obtain new information from the stock price, which is conducive to making better decisions. This mechanism is called "manager learning" mechanism. This new information includes future market demand for enterprise products, future investment opportunities, future financing possibilities, relationships with various stakeholders, and competitive strategies with rival companies. Since the success rate of corporate innovation is lower and higher risk than traditional investment projects, managers must use this useful information when making innovative investment decisions. Therefore, it is expected that the increase in stock price information can promote corporate innovation.

Stock Liquidity Mechanism
The increase in the information content of stock prices can attract more investors to participate in transactions, thereby improving stock liquidity. Chen Menggen and Mao Xiaoyuan (2007) showed that there is a significant positive correlation between stock turnover rate and stock price information content.
Furthermore, the improvement of stock liquidity can bring more traders' information into the stock price, which helps to increase the stock price information content (Su & Xiong, 2013). It can be said that the information content of stock prices and stock liquidity promote each other.
Enterprise innovation is a systematic project, which requires a good institutional environment and incentive mechanism as a guarantee. Many documents show that a good corporate governance mechanism can promote enterprise technological innovation (Lu & Dang, 2014). The increase in stock liquidity will help strengthen the supervision mechanism of institutional investors and reduce the opportunistic tendency of corporate managers (Faure- Grimaud & Gromb, 2004). The increase in stock price information content and stock liquidity will also help more traders gather information in the stock price, enabling stakeholders to provide managers with more effective compensation contracts, thereby inspiring managers' enthusiasm for work (Jayaraman & Milbourn, 2012).
Therefore, the increase of stock price information content can improve corporate agency efficiency, improve corporate governance mechanisms, and ultimately promote corporate innovation through stock liquidity.
Based on the above analysis, this article proposes the following hypotheses: Hypothesis 1: The stock market has a significant feedback effect on corporate innovation, that is, the increase of stock price information content has a significant positive promotion effect on corporate innovation. Hypothesis 2: Strengthening the learning of managers is the internal mechanism by which the information content of stock prices affects corporate innovation.
Hypothesis 3: Improving stock liquidity is the internal mechanism for the information content of stock prices to influence corporate innovation.
Compared with private enterprises, there is a natural connection between state-owned enterprises and the government, so the government intervention is also greater. The transformation and restructuring of state-owned enterprises is still in progress. The appointment of corporate managers is determined by the Open Journal of Social Sciences higher-level government management departments. The managers themselves have administrative ranks. Political promotion incentives determine that managers are subordinate to their superiors. Therefore, the behavior of managers is to take politics as the main orientation, not the market as the main orientation (Xu & Yan, 2011). State-owned enterprises also bear policy burdens and social burdens due to historical inheritance and the nature of the enterprise. Target assessment cannot be completely measured by market performance indicators. Due to these political tasks, state-owned enterprises can receive government financial subsidies. In addition, state-owned banks have a natural preference for state-owned enterprises when issuing loans, and there are also soft constraints on state-owned enterprise budgets (Lin & Li, 2004). The dominance of state-owned shares is common, and it is difficult for external institutional investors to form checks and balances. State-owned enterprises have multi-level principal-agent relationships, and the absence of owners makes it difficult to design effective supervision mechanisms for managers. Human behavior is supervised (Li, 2007). All in all, due to the natural connection with the government, the degree of marketization of state-owned enterprises is not as good as that of private enterprises in the competitive market, and the feedback effect of stock price information content is weaker in state-owned enterprises. Therefore, the information content of state-owned enterprises' stock price has an impact on enterprise innovation. The role of promotion is weaker than that of private enterprises. High-tech companies choose to go public for financing more, and the changes in stock prices and the information content contained in stock prices are also more concerned by high-tech companies. Therefore, the feedback effect has a greater impact on high-tech companies.
Based on the above analysis, this article proposes the following hypotheses: Hypothesis 4: Compared with state-owned enterprises, the information content of stock prices has a more significant role in promoting innovation in private enterprises.
Hypothesis 5: Compared with non-high-tech companies, the information content of stock prices plays a more significant role in promoting the innovation of high-tech companies.
To verify the above five assumptions, this paper mainly adopts the following verification methods. Firstly, the Poisson distribution regression model in the counting model is used to test the influence of stock price information content on enterprise innovation, that is, to verify hypothesis 1; Secondly, using the measurement method of Fresard (2012) for reference to test the "manager learning mechanism", thus verifying hypothesis 2; Then, using the viewpoints of Amihud and Mendelson (1986)

Data Source
The patent data in this article comes from the "listed company patent research database" of CSMAR, the corporate R&D data comes from the Tonghuashun Database, and the institutional investor data comes from the Wind Database.
The rest of the sample data comes from the CSMAR Database.

Model Setting
This article uses the number of patent applications to measure the innovation capability of an enterprise. The distribution of patent data is the Poisson distri-

Explanatory Variable: Information Content of Stock Price
The information entered into the stock price includes information at the market, industry, and corporate level. In order to obtain the corporate characteristics contained in the stock price, it is necessary to remove the market-level and industry-level influence. Therefore, when using the index model, it is necessary to add the factors of market return and industry return. Drawing on the relevant literature in the previous period, the following model is used to calculate the stock price information content:

Basic Regression Results
The first column of Table 1     in the same year divided by the absolute value of the forecast mean. In order to make the results easier to analyze, add 0.0001 to the analyst's earnings forecast deviation and then take the natural logarithm. In this way, the higher the variable, the more private information the market has on managers. After adding the information variables held by the analyst, if the regression coefficient of the stock price information content is still significant, it means that there is still new information in the stock price that has an impact on the manager's deci- Among them, itd r and itd V are the return rate and transaction amount of stock i on the d day of t year ignoring the reinvestment of dividends; it D is the total number of trading days in the year; r itd itd V is the price change caused by the turnover per million yuan, taking the annual average and multiplying by 100 is the illiquidity index. The higher the ILLIQ, the greater the impact of the unit transaction amount on the price, and the lower the stock liquidity, and vice versa.
Next, add the stock illiquidity index (ILLIQ) and the interaction term (Inform × ILLIQ) between the index and the information content of the stock price in the regression model. The fourth column of Table 1 reports the regression results. The stock illiquidity coefficient is significantly negative, indicating that the higher the stock liquidity, the greater the number of patent applications for companies in the next year. The coefficient of the interaction term is significantly positive, indicating that the lower the stock liquidity, the greater the impact of the stock price information content on the number of patent applications, that is, the stock price information content promotes corporate innovation activities by improving stock liquidity. Stock liquidity is the internal mechanism by which the information content of stock prices affects corporate innovation. Assumption 3 is verified.

Grouped Regression Results
Next, test Hypothesis 4 and Hypothesis 5. The results of group regression are The empirical p value in the last row is 0.000, which indicates that the coefficients are significantly different. That is, compared with state-owned enterprises, the information content of stock prices is more important for private enterprises in the next year. The number of applications has a greater promotion effect, and Hypothesis 4 has been verified.
The third and fourth columns in Table 2 are the results of the regression of high-tech companies and non-high-tech companies. The industry classification

Conclusion and Policy Implications
This paper uses the sample data of my country's Shanghai and Shenzhen A-share listed companies from 2009 to 2018 to study the feedback effect of corporate characteristics contained in stock prices on corporate innovation and its internal mechanism. Research shows that: 1) The stock price information content will significantly promote the number of patent applications for companies in the next 1 to 3 years. If the stock price information content increases by 1 percentage point, the number of patent applications in the next year will increase by 1.13 percentage points; 2) The impact of stock price information content on corporate innovation is mainly realized by strengthening the manager's learning mechanism and improving the stock liquidity mechanism; 3) Compared with state-owned enterprises, the positive impact of stock price information content on private enterprise innovation is more significant; 4) Compared with non-high-tech companies, the information content of stock prices has a greater positive impact on high-tech companies.
The research conclusions of this paper have important policy implications for deepening and perfecting the effectiveness of my country's stock market and promoting corporate innovation. First, the stock market has an important feedback effect on corporate innovation. The higher the stock price information content, the more useful information managers can obtain from the stock price; at the same time, the higher the stock price information content, it will attract more investors to participate in transactions, improve stock liquidity, and strengthen the company's external governance mechanism. There by promoting enterprise innovation. Therefore, we must continue to advance the reform of my country's stock market, improve the transparency of the stock market, and improve the effectiveness of the stock market, so that stock prices can better reflect corporate characteristics. For example, improve the market information transmission system and improve the efficiency of information disclosure, dissemination, interpretation and feedback. Second, improve the competitive environment between state-owned and private enterprises, reduce government interventions in state-owned enterprises, introduce private and foreign capital, and continue to promote the reform of mixed ownership of state-owned enterprises, so that market mechanisms can be more decisive in resource allocation role, and strengthen the mechanism and ability of state-owned enterprises to obtain information from the stock market.

Deficiencies of Articles
The deficiency of this paper is that the data of patent citation in China is not available yet, and only the number of patent applications is used to measure the innovation ability of enterprises, so the research has limitations.