Abstract
This study analyzes the effects of equity market mispricing on firm innovation. Using a sample of nearly 450 non-financial listed firms in Vietnam from to 2014-2023, the authors examine whether firm innovation is sensitive to stock mispricing. Adopting the method of Rhodes-Kropf et al. (2005), the authors estimated the difference between market capitalization and the long-term fundamental value of equity to measure stock mispricing. As Shen et al. (2021) suggest, firm innovation is measured by research and development funding scaled by operating income. The relationship between stock misvaluation and firm innovation was analyzed using regression analysis. Empirical results show that stock mispricing positively affects firm innovation in Vietnam. Overvalued listed companies invest more actively in R&D. Further, the relationship between stock mispricing and corporate innovation is more prominent for frequently traded stocks. The promoting effect of stock mispricing on enterprise innovation is amplified in high-growth firms. This study provides new evidence regarding the impact of stock mispricing on firm innovation in Vietnam, in comparison with more developed markets such as the US or representative emerging markets such as China. Our results help foreign investors and scholars to better understand the connection between equity markets and corporate finance in the context of Vietnam