The Relationship between Innovation Capital, Firm Value, and Firm Risk

Abstract

The purpose of this study is to examine two relationships: (1) innovation capital and firm value; and (2) innovation capital and firm risk. The population of this study was all companies listed on the Indonesia Stock Exchange from 2016-2020, and the required research sample was drawn using a purposive sampling technique. Data analysis technique used multiple linear regression. The result revealed that innovation capital had a positive and statistically significant effect on firm value, but innovation capital had a negative and insignificant relationship on firm risk. Based on the analysis, it can be concluded that innovation capital has a potential factor to increase company's value, only if companies have a competitive advantage by disclosing the R&D costs and investments in their financial statements. Because of each company is unique, innovation capital is not always related to a systematic risk measurement.

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“…[72] and Aditya and Kaswar [4] defined innovation capital as a firm's investment in research and development. Yuliya et al [103] noted that it indicates the firm's ability to generate and exploit new knowledge and developments.…”

“…While innovation is a crucial driver of corporate success, information about it is critical [12]. This is because improving innovation capital can be accomplished by boosting the flow of knowledge generation [4]. Thus, knowledge is the source of innovation, and providing information about it would assist people to realise the value of businesses.…”