Market reactions to old innovation news : evidence from patent disclosures in China

Abstract

This paper examines how investors' past inattention affects market reactions to corporate innovation announcements, leveraging a unique setting in China where many publicly listed firms voluntarily disclose patent grants—information already public via the Patent Gazette. Using a hand-collected dataset of 2086 announcements from 2010 to 2018, we find a significant market reaction on the corporate news announcement day. Our analysis shows that this market reaction to stale patent news is positively related to investors' past limited attention, rather than to attention-driven overreaction or other factors influencing returns. Subsample analyses further show that this relationship is more pronounced among firms with low institutional ownership and opaque information environments, and is stronger for announcements preceded by the same type of innovation disclosure within the prior 3 months. In addition, we find that retail investors drive this relationship. Our evidence also indicates that managers take proactive actions to mitigate investors' attention constraints, thereby enhancing the market's pricing of innovation news.