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Stakes and Stars: The Effect of Intellectual Human Capital on the Level and Variability of High-Tech Firms' Market Values

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  • Michael R. Darby
  • Qiao Liu
  • Lynne G. Zucker

Abstract

High-tech firms are built much more on the intellectual capital of key personnel than on physical assets, and firms built around the best scientists are most likely to be successful in commercializing breakthrough technologies. As a result, such firms are expected to have higher market values than similar firms less well endowed. In this paper we develop and implement an option-pricing based technique for valuing these and similar intangible assets by examining the effect of ties to star scientists on the market value of new biotech firms. Since firms with more star ties are likely to have a greater probability per unit time of making a commercially valurable R&D breakthrough, we argue and confirm empirically that both the value of the firm and the likelihood of jumps in the value are increasing in the number of star ties. These effects can be financially as well as statistically significant: for two firms with mean values for other variables, the predicted increase in market value of a firm with one article written by a star as or with a firm employee is 7.3% or 16 million 1984 dollars compared to a firm with no articles.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7201.

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Date of creation: Jun 1999
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Handle: RePEc:nbr:nberwo:7201

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  1. Cockburn, Iain & Griliches, Zvi, 1988. "Industry Effects and Appropriability Measures in the Stock Market's Valuation of R&D and Patents," American Economic Review, American Economic Association, vol. 78(2), pages 419-23, May.
  2. Bronwyn Hall, 1998. "Innovation and Market Value," Economics Series Working Papers 1999-W03, University of Oxford, Department of Economics.
  3. Manuel Trajtenberg, 1990. "A Penny for Your Quotes: Patent Citations and the Value of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 172-187, Spring.
  4. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
  5. Griliches, Zvi, 1981. "Market value, R&D, and patents," Economics Letters, Elsevier, vol. 7(2), pages 183-187.
  6. Newey, Whitney K & West, Kenneth D, 1987. "Hypothesis Testing with Efficient Method of Moments Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 777-87, October.
  7. Lynne G. Zucker & Michael R. Darby & Jeff Armstrong, 1999. "Intellectual Capital and the Firm: The Technology of Geographically Localized Knowledge Spillovers," NBER Working Papers 4946, National Bureau of Economic Research, Inc.
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Cited by:
  1. Elfenbein, Daniel W., 2007. "Publications, patents, and the market for university inventions," Journal of Economic Behavior & Organization, Elsevier, vol. 63(4), pages 688-715, August.
  2. Forum Franco Allemand, 2000. "The First Year of EMU," Working Papers 2000-05, CEPII research center.
  3. Michael R. Darby & Lynne G. Zucker, 2002. "Going Public When You Can in Biotechnology," NBER Working Papers 8954, National Bureau of Economic Research, Inc.
  4. Bronwyn Hall, 2006. "R&D, productivity and market value," IFS Working Papers W06/23, Institute for Fiscal Studies.

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