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High Stakes in High Technology: High-Tech Market Values as Options

Author

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

Abstract

In 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.

Suggested Citation

  • Michael R. Darby & Qiao Liu & Lynne G. Zucker, 2004. "High Stakes in High Technology: High-Tech Market Values as Options," Economic Inquiry, Western Economic Association International, vol. 42(3), pages 351-369, July.
  • Handle: RePEc:oup:ecinqu:v:42:y:2004:i:3:p:351-369
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    File URL: http://hdl.handle.net/10.1093/ei/cbh066
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    Cited by:

    1. Zhifeng Yin & Qiang Zhi, 2017. "Dancing with the academic elite: a promotion or hindrance of research production?," Scientometrics, Springer;Akadémiai Kiadó, vol. 110(1), pages 17-41, January.
    2. Lynne G. Zucker & Michael R. Darby, 2009. "Star Scientists, Innovation and Regional and National Immigration," Chapters,in: Entrepreneurship and Openness, chapter 6 Edward Elgar Publishing.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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