The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu The leading online blog in the fields of corporate governance and financial regulation. Fri, 05 Jun 2026 16:08:54 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.8 https://corpgov.law.harvard.edu/wp-content/uploads/2024/02/cropped-photography-4-e1706898544564-1-32x32.png Stock Market Evaluation, Moon Shots, and Corporate Innovation – The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu 32 32 Stock Market Evaluation, Moon Shots, and Corporate Innovation https://corpgov.law.harvard.edu/2018/02/02/stock-market-evaluation-moon-shots-and-corporate-innovation/?utm_source=rss&utm_medium=rss&utm_campaign=stock-market-evaluation-moon-shots-and-corporate-innovation https://corpgov.law.harvard.edu/2018/02/02/stock-market-evaluation-moon-shots-and-corporate-innovation/#comments Fri, 02 Feb 2018 14:11:16 +0000 https://corpgov.law.harvard.edu/?p=104493?d=20230208130350EST Posted by Ming Dong (York University), David Hirshleifer (UC Irvine), and Siew Hong Teoh (UC Irvine), on Friday, February 2, 2018
Editor's Note:

Ming Dong is an associate professor of finance at York University Schulich School of Business; David Hirshleifer is Paul Merage Chair in Business Growth and professor of finance at University of California at Irvine Paul Merage School of Business, and a Research Associate at NBER; Siew Hong Teoh is Dean’s Professor of Accounting at University of California at Irvine Paul Merage School of Business. This post is based on their recent paper.

We test how stock market overvaluation affects corporate innovative activities and success. Under what we call the misvaluation hypothesis of innovation, firms respond to market overvaluation by engaging more heavily in innovative activities, resulting in higher future innovative output. We further argue that overvaluation encourages the most risky and creative forms of innovation (“moon shots”). We empirically test this hypothesis by relating measures of stock misvaluation to corporate innovative investment in the form of research and development (R&D), innovative output (measured by the number of patents and patent citations), and innovative inventiveness (measured by novelty, originality, and scope of patents and citations).

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