Do stock market and banking sectors development promote innovation efficiency?

Abstract

Purpose The purpose of this paper is to investigate the impacts of stock market and banking sectors development on a country’s efficiency in transforming its innovation input into output. Design/methodology/approach This study employs a generalized method-of-moments panel estimator to examine the role of stock market and banking development in influencing innovation efficiency. Findings Findings show that a country’s stock market development is positively related to its innovation efficiency ratio. Countries with more developed stock markets have relatively higher efficiency in transforming innovation input into innovation output than those with less developed stock markets. There is no evidence that innovation efficiency is influenced by banking sector development. However, when stock market and banking sectors are modeled together, while stock market development retains its positive influence, the findings indicate that banking sector exerts negative impact on innovation efficiency. Practical implications The findings provide useful insights to guide policy decisions for a country’s innovation agenda in enhancing its innovation performance. The findings imply that stock market development should be embraced as one of the key policy areas in order for a country to be more efficient in transforming its innovation input into innovation output. Originality/value This paper provides first evidence using data sourced from Global Innovation Index report, first available in 2007 and published by Cornell University, INSEAD and the World Intellectual Property Organization.

Firm-level political risk and corporate innovation: evidence from US listed firms

“…, 2022); product market competition (Le et al. , 2021); stock market development (Low et al. , 2018); religion and gambling attitude (Adhikari and Agrawal, 2016); ownership structure (Helling et al.…”

“…There are numerous studies that link innovation to a wide range of factors (e.g. political connections (Hou et al, 2017); military connections (Harymawan et al, 2022); product market competition (Le et al, 2021); stock market development (Low et al, 2018); religion and gambling attitude (Adhikari and Agrawal, 2016); ownership structure (Helling et al, 2020); managerial characteristics (Cho et al, 2016) board composition and governance (Xie et al, 2021)). However, except for a few studies including that of Atanassov et al (2015), political factors have largely been ignored in this literature.…”

Effects of Inflation and Exchange Rates on Stock Prices of PT Bank Negara Indonesia (Persero) Tbk

“…However, this decision was made without considering the influence of macroeconomic factors such as inflation and the exchange rate on the stock prices of public companies [1]. Low et al (2018) argues that the stock market has a vital position in developing a country's economy [2]. According to them, the stock market serves as a source for mobilizing domestic resources for productive investment.…”