Abstract
Using data from Chinese A-share listed companies from 2008 to 2021, this study examines investors' preferences toward research and development (R&D) and their effect on corporate innovation. The study finds that R&D is positively associated with the characteristics of the stock lottery, and this relationship is not caused by historical performance or information asymmetry, indicating that investors may treat R&D as a lottery. Compared with capitalized R&D expenditures, expensed R&D expenditures demonstrate more substantial effects on lottery characteristics. Furthermore, investors' gambling preferences for R&D promote corporate innovation, independent of investor sentiment and mainly achieved through nonfinancing channels. From the perspective of financing channels, debt financing is more effective in enhancing innovation output than equity financing in Chinese capital markets.
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