Innovation activity and corporate financing: evidence from a developing economy

The present study investigates the extent to which technology-related asymmetric information between corporate managers and outside investors has an adverse effect on the external financing activities of innovation-intensive firms. The results indicate that innovation-intensive firms are more likely to engage in equity financing when their valuation multiples are higher than those of their industry peers. This finding is more pronounced among firms with low institutional shareholdings and fewer brokers following them. The empirical evidence supports the misvaluation explanation, as well as the timing and type of security issuance if the agency problem is severe. The findings provide insights into the timing of company financing choices in a highly innovative developing economy.