High Stakes in High Technology: High-Tech Market Values as Options
AbstractIn science-based industries, world-class scientists drive the most successful firms. These scientists are more likely to follow high-stakes, high-returns R&D strategies instead of more predictable incremental strategies. We develop an options pricing model in which the probability of stock-price jumps increases with knowledge capital. GMM estimates show the probability of stock-price jumps increases with three measures of knowledge capital intensity, two of which can be reasonably estimated contemporaneously. The model explains most variation in biotech firm market values. Firms with two standard deviations more knowledge capital are valued 10--50% more than firms with mean values of all variables. (JEL G12, O31, M40) Copyright 2004, Oxford University Press.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 42 (2004)
Issue (Month): 3 (July)
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Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- M40 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - General
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- Lynne G. Zucker & Michael R. Darby, 2007. "Star Scientists, Innovation and Regional and National Immigration," NBER Working Papers 13547, National Bureau of Economic Research, Inc.
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