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As luck would have it: innovation and market value in "complex technology" sectors
[Innovation et valeur boursière dans les secteurs de " technologies complexes "]

Author

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  • Alex Coad

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Max Planck Institute of Economics - Max-Planck-Gesellschaft)

  • Rekha Rao

    (Max Planck Institute of Economics - Max-Planck-Gesellschaft)

Abstract

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.

Suggested Citation

  • Alex Coad & Rekha Rao, 2006. "As luck would have it: innovation and market value in "complex technology" sectors [Innovation et valeur boursière dans les secteurs de " technologies complexes "]," Post-Print halshs-00119062, HAL.
    • Handle: RePEc:hal:journl:halshs-00119062
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00119062
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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