The effect of firm size, industry type and ownership structure on the relationship between firms' sustainable innovation capability and stock liquidity

Does the company attach importance to research and development (R&D) investment in its operations? Is stock liquidity detrimental to corporate innovation and thus damages the company’s sustainable development capabilities? We estimate the relationship between between stock liquidity and firms’ sustainable innovation capability on China’s stock market by OLS method and difference in difference (DID) method. The traditional conclusion is: the higher the stock liquidity, the weaker the enterprise's sustainable innovation level, especially in state-owned enterprises. The DID estimation using the share-trading reform and the policy of large and small-sized non-tradable share shows that: stock liquidity will affect the sustainable innovation level of the enterprise positively. The reasons for this mechanism are the supervision mechanism in the operation of the enterprise, the effect of the balance of the ownership structure and the improvement of corporate governance. The conclusions are that the improvement of ownership concentration promotes this positive relationship, and the behavior of institutional investors does not have a significant impact. These findings also provide new insights into the relationship between corporate management and shareholder investment behavior on the level of innovation.