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As luck would have it : innovation and market value in "complex technology" sectors

  • Alex Coad


    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Max Planck Institute of Economics - Evolutionary Economics Group)

  • Rekha Rao

    (Max Planck Institute of Economics - Evolutionary Economics Group)

How do financial markets respond to firms' efforts at innovation ? To answer this question, we measure innovation by creating a synthetic indicator based on a firm's recent history of R&D expenditure and patent applications. We focus on four 2-digit «complex technology» manufacturing sectors that have been hand-picked according to their high propensities to innovate. Whilst standard regression techniques find a positive relationship between innovation and growth, quantile regression analysis adds a new dimension to the literature. We identify those «superstar» firms with the highest stock market valuations and show that these firms owe a lot of their success to their previous efforts at innovation. However, there are also other firms whose attempts to innovate are virtually ignored by financial markets. Our results emphasize the fundamental uncertainty of R&D.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00119062.

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Date of creation: Nov 2006
Date of revision:
Publication status: Published in Cahiers de la Maison des Sciences Economiques 2006.69 - ISSN 1624-0340. 2006
Handle: RePEc:hal:cesptp:halshs-00119062
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  1. Griliches, Zvi, 1990. "Patent Statistics as Economic Indicators: A Survey," Journal of Economic Literature, American Economic Association, vol. 28(4), pages 1661-1707, December.
  2. Bronwyn H. Hall & Adam B. Jaffe & Manuel Trajtenberg, 2001. "The NBER Patent Citation Data File: Lessons, Insights and Methodological Tools," NBER Working Papers 8498, National Bureau of Economic Research, Inc.
  3. Pakes, Ariel, 1985. "On Patents, R & D, and the Stock Market Rate of Return," Scholarly Articles 3436409, Harvard University Department of Economics.
  4. Bronwyn H. Hall & Raffaele Oriani, 2004. "Does the Market Value R&D Investment by European Firms? Evidence from a Panel of Manufacturing Firms in France, Germany, and Italy," NBER Working Papers 10408, National Bureau of Economic Research, Inc.
  5. 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.
  6. repec:fth:harver:1473 is not listed on IDEAS
  7. Bronwyn H. Hall & Adam B. Jaffe & Manuel Trajtenberg, 2000. "Market Value and Patent Citations: A First Look," NBER Working Papers 7741, National Bureau of Economic Research, Inc.
  8. Mata, Jose & Machado, Jose A. F., 1996. "Firm start-up size: A conditional quantile approach," European Economic Review, Elsevier, vol. 40(6), pages 1305-1323, June.
  9. Mahmut Yasar & Carl H. Nelson & Roderick Rejesus, 2006. "Productivity and Exporting Status of Manufacturing Firms: Evidence from Quantile Regressions," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(4), pages 675-694, December.
  10. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
  11. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521845731, September.
  12. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, vol. 76(5), pages 984-1001, December.
  13. Bronwyn H. Hall & Adam Jaffe & Manuel Trajtenberg, 2005. "Market Value and Patent Citations," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 16-38, Spring.
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