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The Effects on Firm Profits of the Stock of Intellectual Property Rights

  • William E. Griffiths

    (Centre for Microeconometrics, Department of Economics, The University of Melbourne)

  • Paul H. Jensen

    ()

    (Melbourne Institute of Applied Economic and Social Research, and Intellectual Property Research Institute of Australia, The University of Melbourne)

  • Elizabeth Webster

    ()

    (Melbourne Institute of Applied Economic and Social Research, and Intellectual Property Research Institute of Australia, The University of Melbourne)

The effects of innovation on firm performance is conventionally analysed using R&D or patent applications as measures for innovation capital and market value as the measure of firm performance. We argue that such studies fall short in three important respects. First, the proxies used for innovation capital are flows not stocks as the theory suggests. Secondly, while they are derived from the theory of intangible capital, their estimations ignore other important intangible capital such as organisational and marketing capital; and thirdly, by using market value, the studies heroically assume that stock markets work efficiently. In this paper, we develop a model of the effects of intangible capital, including, but not limiting to, innovation capital, on firm profits, using new measures for the former. Our results indicate that profits vary, ceteris paribus, according to the type of IP rights held by the firm, the age of the firm, the size of the firm, and the lifespan of the IP right.

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Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2005n04.

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Length: 23 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:iae:iaewps:wp2005n04
Contact details of provider: Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
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