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Patented knowledge capital and implied equity risk premium

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  • Hegde, Shantaram P.
  • Mishra, Dev R.

Abstract

Patented knowledge capital improves the transparency of research and development expenditures, converts intangible intellectual property into collateralizable and salable assets, enhances sustained competitive advantage by enabling firms to weather business cycles, withstand obsolescence risk and competitive threats, and lowers future financing risk and growth uncertainties. Consistent with this conjecture, we find that knowledge capital, proxied by stocks of patents, their forward citations and estimated market value, is associated with lower future cost of equity as well as firm risk. These findings appear robust to controlling for the stock of R&D expenses, potential endogeneity concerns about firms’ innovative activities, controls for technology spillovers from industry rivals, and product market competition.

Suggested Citation

  • Hegde, Shantaram P. & Mishra, Dev R., 2023. "Patented knowledge capital and implied equity risk premium," Journal of Banking & Finance, Elsevier, vol. 148(C).
    • Handle: RePEc:eee:jbfina:v:148:y:2023:i:c:s0378426622003181
    DOI: 10.1016/j.jbankfin.2022.106738
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    Keywords

    Implied cost of equity; Fama-french three-factor model; Patents; Citations; Innovation;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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