The Impact of Corporate Innovation on Abnormal Stock Returns: The Moderating Role of Investor Sentiment

The basic purpose of this research is to determine the influence of corporate innovation on abnormal stock returns; additionally, it examined the effect of noise trading & market sentiment on the stock returns of innovative firms. The study utilized the data of 06 years from 2013 to 2018 of S&P100 firms and employed the data of patents and citations to measure corporate innovation. The results confirmed the value relevance hypothesis that corporate innovation acts as a resource to enable a firm to get positive abnormal returns in the capital market. Our results also remained consistent when we introduced investors' sentiments to our analysis and found out that in the presence of noise trading and investors' biasedness, the abnormal stock returns of innovative firms remained positive. This study will shed light on the role of corporate innovation in finance and motivate stakeholders to encourage innovation in firms. Moreover, we also hope to provide an insight for investors to consider innovation while formulating their investment decisions.