Corporate innovation and performance: a textual measure based on securities analysts’ research reports

The relationship between innovation investment and firm performance has been a central focus of academic research. Traditional metrics, such as patent counts and R&D expenditures, are often criticised for their limited scope and lack of diversity. In contrast, analyst reports offer a richer source of information on innovation activities. This study employs textual analysis to assess firms' innovation efforts by examining research reports on publicly listed companies. Using methods such as word segmentation, the research constructs corporate innovation indicators based on the LDA (Latent Dirichlet Allocation) topic model. Analyzing data from 2010 to 2021, the study empirically validates these new innovation indicators and investigates their impact on firm performance. The findings indicate that corporate innovation significantly enhances firm performance. Compared to traditional metrics like patents, the indicators developed here are more comprehensive, offering a broader measure of innovation and addressing the limitations of conventional metrics. These results are consistent across various robustness checks. Additionally, the study finds that corporate innovation improves performance primarily by increasing total factor productivity. Furthermore, strong corporate governance amplifies the positive impact of innovation on firm performance.