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The Value of Innovation: The Interaction of Competition, R&D and IP

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  • Christine Greenhalgh
  • Mark Rogers

Abstract

This paper analyses market valuations of UK companies using a new data set of their R&D and IP activities (1989-1999). In contrast to previous studies, the analysis is conducted at the sector level, where the sectors are based on the technological classification in Pavitt (1984). The first main result is that the valuation of R&D and IP varies substantially across these sectors. To explore these variations the paper links competitive conditions with the market valuation of innovation. Using profit persistence as a measure of competitive pressure, we find that the sectors that are the most competitive have the lowest market valuation of R&D. Furthermore, within the most competitive sector (`science based`), firms with larger market shares (an inverse indicator of competitive pressure) also have higher R&D valuations. Another important result is that, on average, firms that receive only UK patents tend to have no market premium. In direct contrast, patenting through the European Patent Office does raise market value, as does the registration of trade market in the UK.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 192.

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Date of creation: 01 Jun 2004
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Handle: RePEc:oxf:wpaper:192

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Keywords: R&D; Intellectual Property; Market Valuation; Competition.;

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References

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  1. Hall, Bronwyn H., 1999. "Innovation and Market Value," Department of Economics, Working Paper Series qt9f31v1rw, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Nickell, S.J., 1993. "Competition and Crporate Performance," Economics Series Working Papers 99155, University of Oxford, Department of Economics.
  3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  4. Loury, Glenn C, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 395-410, August.
  5. Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 529-54, July.
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  7. Glen, Jack & Lee, Kevin & Singh, Ajit, 2001. "Persistence of profitability and competition in emerging markets," Economics Letters, Elsevier, vol. 72(2), pages 247-253, August.
  8. Bosworth, Derek & Rogers, Mark, 2001. "Market Value, R&D and Intellectual Property: An Empirical Analysis of Large Australian Firms," The Economic Record, The Economic Society of Australia, vol. 77(239), pages 323-37, December.
  9. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  10. Boone, Jan, 2001. "Intensity of competition and the incentive to innovate," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 705-726, April.
  11. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
  12. Toivanen, Otto & Stoneman, Paul & Bosworth, Derek, 2002. " Innovation and the Market Value of UK Firms, 1989-1995," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(1), pages 39-61, February.
  13. Zvi Griliches, 1984. "Market Value, R&D, and Patents," NBER Chapters, in: R & D, Patents, and Productivity, pages 249-252 National Bureau of Economic Research, Inc.
  14. Andrew Benito, 2001. "'Oscillate Wildly': asymmetries and persistence in company-level profitability," Bank of England working papers 128, Bank of England.
  15. Greenhalgh, Christine & Longland, Mark, 2001. " Intellectual Property in UK Firms: Creating Intangible Assets and Distributing the Benefits via Wages and Jobs," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(0), pages 671-96, Special I.
  16. Pavitt, Keith, 1984. "Sectoral patterns of technical change: Towards a taxonomy and a theory," Research Policy, Elsevier, vol. 13(6), pages 343-373, December.
  17. Kee H. Chung & Stephen W. Pruitt, 1994. "A Simple Approximation of Tobin's q," Financial Management, Financial Management Association, vol. 23(3), Fall.
  18. Vossen, R.W., 1998. "R&D, firm size and branch of industry: policy implications," Research Report 98B43, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  19. Christine Greenhalgh & Mark Longland, 2002. "Running to Stand Still? - Intellectual Property and Value Added in Innovating Firms," Economics Series Working Papers 134, University of Oxford, Department of Economics.
  20. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September.
  21. Kamien, Morton I & Schwartz, Nancy L, 1976. "On the Degree of Rivalry for Maximum Innovative Activity," The Quarterly Journal of Economics, MIT Press, vol. 90(2), pages 245-60, May.
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Citations

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Cited by:
  1. A. Arrighetti & F. Landini & A. Lasagni, 2011. "Intangible assets and firms heterogeneity: evidence from Italy," Economics Department Working Papers 2011-EP02, Department of Economics, Parma University (Italy).
  2. Mark Rogers, 2006. "R&D and Productivity in the UK: evidence from firm-level data in the 1990s," Economics Series Working Papers 255, University of Oxford, Department of Economics.
  3. Ornella Maietta & Vania Sena, 2008. "Is competition really bad news for cooperatives? Some empirical evidence for Italian producers’ cooperatives," Journal of Productivity Analysis, Springer, vol. 29(3), pages 221-233, June.
  4. Nicolas van Zeebroeck, 2011. "The Puzzle of Patent Value Indicators," ULB Institutional Repository 2013/60729, ULB -- Universite Libre de Bruxelles.
  5. Sunil Kanwar, 2013. "Innovation, Productivity and IPRs," Working papers 230, Centre for Development Economics, Delhi School of Economics.
  6. Christian Helmers & Mark Rogers, 2010. "Innovation and the Survival of New Firms in the UK," Review of Industrial Organization, Springer, vol. 36(3), pages 227-248, May.
  7. Renaud Bourlès & Gilbert Cette & Jimmy Lopez & Jacques Mairesse & Giuseppe Nicoletti, 2010. "Do Product Market Regulations In Upstream Sectors Curb Productivity Growth? Panel Data Evidence For Oecd Countries," Working Papers halshs-00504161, HAL.
  8. Christine Greenhalgh & Mark Rogers, 2007. "The Value of Intellectual Property Rights to Firms," Economics Series Working Papers 319, University of Oxford, Department of Economics.
  9. Cardamone, Paola & Pupo, Valeria & Ricotta, Fernanda, 2014. "Do firms benefit from university research? Evidence from Italy," MPRA Paper 57034, University Library of Munich, Germany.
  10. Block, Joern H. & De Vries, Geertjan & Schumann, Jan H. & Sandner, Philipp, 2014. "Trademarks and venture capital valuation," Journal of Business Venturing, Elsevier, vol. 29(4), pages 525-542.
  11. A. Arrighetti & F. Landini & A. Lasagni, 2012. "Intangible assets dynamics and firm behaviour," Economics Department Working Papers 2012-EP05, Department of Economics, Parma University (Italy).
  12. Nicolas van Zeebroeck, 2007. "Patents only live twice: a patent survival analysis in Europe," Working Papers CEB 07-028.RS, ULB -- Universite Libre de Bruxelles.
  13. Mark Rogers, 2010. "R&D and productivity: using UK firm-level data to inform policy," Empirica, Springer, vol. 37(3), pages 329-359, July.
  14. Martin Falk, 2013. "New empirical findings for international investment in intangible assets," WWWforEurope Working Papers series 30, WWWforEurope.
  15. Christian Helmers & Mark Rogers, 2008. "Innovation and the Survival of New Firms Across British Regions," Economics Series Working Papers 416, University of Oxford, Department of Economics.

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