Innovation capability and post-IPO performance

This paper studies how firms’ innovation capability is related to their stock performance and eventual survival for a sample of biotech IPO firms. We create product-related measures of firms’ innovation capability by tracking the changes in R&D expenses, products, patents, strategic alliances, and product development stages for our sample firms, as disclosed in their IPO prospectuses and third post-IPO 10-K filings. We find that innovation capability is critical to contemporaneous stock performance and eventual firm survival. Biotech IPO firms are more likely to succeed in the long run, if they are able to expand the scale of their research undertakings and make progress in these research activities. © 2014, Springer Science+Business Media New York.