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RQ Innovative Efficiency and Firm Value

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  • Cooper, Michael
  • Knott, Anne Marie
  • Yang, Wenhao

Abstract

We introduce and test a firm-level innovation-efficiency measure new to the finance literature. The measure, termed the research quotient (RQ), defined as the firm-specific output elasticity of research and development (R&D), was first developed in the management literature. RQ has a low correlation with existing innovation input, output, and efficiency measures. We test RQ in a number of innovation tests common to the finance literature and find that RQ is robust in all tests of firm value, even after controlling for previous innovation measures. The results suggest that RQ may serve as a relevant complementary measure of a company’s innovation.

Suggested Citation

  • Cooper, Michael & Knott, Anne Marie & Yang, Wenhao, 2022. "RQ Innovative Efficiency and Firm Value," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 57(5), pages 1649-1694, August.
    • Handle: RePEc:cup:jfinqa:v:57:y:2022:i:5:p:1649-1694_1
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