Corporate Innovation and Crash Risk: Output and Input Channel

Crash risk has been a hot dispute since financial crisis (2008) and the Chinese stock market crash (2015). Many literature including features of managers have been discussed to connect them with crash risk. However, fewer literatures focus on the channel between innovation and crash risk. In this paper, two different channels of innovation input and output have been constructed to explain the crash risk. Innovation input, R&D activities under earnings management, increase the information asymmetry and crash risk, while innovation output, patent quality for its public availability for datum, decrease the information asymmetry, and crash risk. Sample selection for innovative firms and non-innovative firms have been examined to be robust. The financial crisis has also been tested to verify the crash risk. We hope to build two mechanisms for conduction between innovation and crash risk in China.