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1. Introduction
It is important to investigate what can affect a firm’s research and development (R&D) investment since an extensive literature has indicated the crucial role of innovation in promoting economic growth (Solow, 1957; Aghion and Howitt, 1989). Through numerous theoretical analyses and practical studies, the scholars have found that a firm’s R&D investment is always susceptible to certain financial factors, such as corporate’s capital structure, credit supply of banks, and maturity of the financial market, etc. (Bhagat and Welch, 1995; Bond et al., 2003; Brown et al., 2009; Amore et al., 2013; Hsu et al., 2014). However, the most challenging dilemma that the firms with innovation opportunities often confront with is the financing difficulties because the features of R&D investment include high risk, lack of collateral value and information asymmetry, all of which can heavily impede enterprise financing (Stiglitz, 1985; Hall and Lerner, 2010). Intuitively, financing constraints may hamper a firm’s investment in R&D and ultimately pressure innovation activities, leading to depressing the country-level economic growth eventually. This issue may become more severe in some developing countries like China and India due to the under-developed capital markets and state-dominated financial systems. As a consequence, there is a new motivation to verify and quantify the extent of which R&D investment is affected by financing constraints. The extant literature has proved the negative effect of financing constraints on R&D investment (Bougheas et al., 2003; Czarnitzki et al., 2011; Aghion et al., 2012). But regarding the role of public equity financing, the theoretical literature presents two opposing views on the relationship between the access to the stock market and R&D investment. One stream believes that the advantage of stock markets can provide capital and incentives that a firm needs to innovate. (Allen and Gale, 1999; Brav, 2009; Gao et al., 2017), hence increasing its R&D investment while another stream focuses on the inefficient nature of stock market or agency problems that will hinder firms from investing in innovation (Jensen and Meckling, 1976; Stein, 1989). Given the inconclusive predictions, a number of previous studies have examined how stock market affects R&D investments. From the country’s perspective, Brown (2013) studies a broad sample across 32 countries and finds that the countries...