Do IPO Initial Listing Requirements Affect Innovation

This paper examines whether lowering listing requirements improves the innovation of IPO firms. To this end, I collect the data of IPO firms in Japan that experienced several deregulations on the IPO market around 2000. Findings can be summarized as follows. The innovation input after IPOs in the eased listing period is lower than that in strict listing period. Next, I examine the impact of IPO market deregulation on innovation output and find no difference in the quantity of innovation output but a marginal decline in the quality of innovation output. These results imply that IPO market deregulation has a negative impact on innovation input and a limited impact on innovation output. Several robustness checks confirm the findings. First, I conduct several subsample analyses, including eliminating the period enacted Japanese Sarbanes–Oxley Act (SOX), which increased the cost of listing; restricting the sample by the industry-level innovation intensity; and removing all restrictions on the sample. Last, I examine the innovation of IPO firms in the eased listing requirements those would not go public under the strict listing requirement periods. The results of these robustness checks are consistent with the main findings.