R&D, Patents, and Market Value Revisited: Is There A Second (Technological Opportunity) Factor?

Abstract

It is known that innovations in the market value of manufacturing firms and their R&D expenditures are related (Pakes 1985, Mairesse andSiu 1984). This could be due to shifts in the demand for the output of a particular firm, to shifts in the technological opportunities available to the firm, or to both. In this paper we use innovations in patenting activity as an additional piece of information about technological shifts in order to attempt to identify the relative importance of these two types of shocks. We build a simple two-factor model of innovations in sales, investment, R&D investment, patent applications, and the rate of return to holding a share of the firm, and estimate it using a time series-cross section of U.S. manufacturing firms (340 firms from 1973 to 1980): Except in the pharmaceutical industry. we find little evidence of a second factor which can be clearly identified with technological opportunity, although there is evidence of a long-run growth factor linking both types of investment, patenting activity, and the market value of the firm. We then go on to demonstrate that this null result could be caused by our use of patent counts as a indicator of the value of the underlying patents: under reasonable assumptions on the value distribution. the changes in patenting rates can account for only a small fraction of the changes in the stock market value of the firm, and hence provide essentially no additional information beyond what is already contained in the R&D variables. However, the pharmaceutical industry is an important exception to this: here we find that the technological factor is almost as important as the short-run demand factor in explaining movements in the rate of return.

Impacts of innovation type SME’s R&D capability on patent and new product development

“…Such study result shows that an increase in study on investment for R&D will promote result of patent (Griliches et al, 1991) that conforms to past study result. In addition, marginal effect of the number of concentrations of R&D human resource in relation to patent application and patentability showed 0.0094 of positive (þ) effect, whereas marginal effect of the number of cooperation of R&D human resource has negative (À) effect, which evidences importance of the number concentration of R&D human resource.…”

“…Measurement was made after performance variables were divided into patents, which are a form of direct performance, and new product development, which is a form of indirect performance. Patents are perceived as data universally used for conducting a quantitative study related to the traits of R&D and performance, and actually a typical data that can represent innovation activities in all the areas, featuring long-term accumulation (Griliches et al, 1991;Pérez-Cano and Villén-Altamirano, 2013). Therefore, it is highly APJIE 12,1 justifiable to use patent information in analyzing the relationships between technology innovation and corporate performance.…”

R&D and aggregate fluctuations

“…With quarterly data, four is the common choice for the number of lags which adequately captures the medium-run dynamics in the data. 27 This corresponds to one lag at annual frequencies. The one year lag is also a preferable choice given the short size of the available sample.…”

“…and increasing after the second year following the occurance of the shock, reaching a peak of 0.5 percent in the sixth year following the occurance of the shock. 28 Hours in the R&D sector exhibit a small increase in response to the sectoral productivity shock, followed by a 27 For instance, see Christiano, Eichenbaum and Evans (2005), Altig, Christiano, Eichenbaum and Linde (2005) and Fisher (2006). 28 Notice that the initial small and statistically insigni…cant e¤ect of the R&D productivity shock on the output of the consumption-good sector is consistent with the structure of our economic model in which shocks speci…c to the R&D sector do not have a direct contemporaneous e¤ect on the consumption-good sector output.…”

R&D determinants: Accounting for the differences between research and development

“…The reason is that technological opportunity may raise the average product of R&D without raising its marginal product, and therefore technological opportunity may not increase R&D investment (Klevorick et al, 1995). Empirical studies have found mixed results for technological opportunities (Cohen et al, 1987;Griliches et al, 1991). Again, the relationship between opportunities and the type of R&D is an underresearched topic.…”