How Stock Market Listing Changes Firm Innovation Behavior

The provided text is an excerpt from a 2015 academic article by Simone Wies and Christine Moorman, which explores how going public via an initial public offering (IPO) affects a firm's innovation strategies in the consumer packaged goods (CPG) sector. The authors hypothesize that while public financing increases the level of innovation, stock market pressure and disclosure requirements lead firms to reduce the riskiness of those innovations. Specifically, the study finds that after an IPO, firms introduce more products and greater variety, but fewer breakthrough innovations or products in new categories, confirming the authors' predictions using a sample of 40,000 product introductions between 1980 and 2011. The article also examines factors, such as industry sales growth and appropriability, that can counterbalance the observed decline in risky innovation. The research uses a quasi-experimental design and robustness checks to rule out endogeneity concerns, concluding that the public stock market creates an incentive structure that alters managerial decision-making regarding innovation.