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R&D, Patents, and Market Value Revisited: Is There Evidence of A SecondTechnological Opportunity Related Factor?

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  • Zvi Griliches
  • Bronwyn H. Hall
  • Ariel Pakes

Abstract

It is known that innovations in the market value of manufacturing firms and their RhD expenditures are related (Pakes (1985) and Mairesse and Siu (1984)). This could be due to shifts in the demand for the output of a particular firm, to shifts in the technological opportunities available to the firm, or to both. In this paper we use innovations in patenting activity as an additional piece of information about technological shifts in order to attempt to identify the relative importance of these two types of shocks. We build a simple two factor model of innovations in sales, investment. R&D investment, patent applications, and the rate of return to holding a share of the firm, and estimate it using a time series-cross section of U.S. manufacturing firms (340 firms from 1973 to 1980). Except in the pharmaceutical industry, we find little evidence of a second factor which can be clearly identified with technological opportunity, although there is evidence of a long run growth factor linking both types of investment, patenting activity, and the market value of the firm. We then go on to demonstrate that this null result could be caused by our use of patent counts as an indicator of the value of the underlying patents: under reasonable assumptions on the value distribution, the changes in patenting rates can account for only an infinitesimal fraction of the changes in the stock market value of the firm, and hence provide essentially no additional information to the estimation procedure. However, the pharmaceutical industry is an important exception to this: here we find that the technological factor is almost as important as the short run demand factor in explaining movements in the rate of return, although both factors together account for less than five percent of the variance of this variable.

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  • Zvi Griliches & Bronwyn H. Hall & Ariel Pakes, 1988. "R&D, Patents, and Market Value Revisited: Is There Evidence of A SecondTechnological Opportunity Related Factor?," NBER Working Papers 2624, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2624
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    References listed on IDEAS

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    1. Bronwyn H. Hall & Zvi Griliches & Jerry A. Hausman, 1984. "Patents and R&D: Is There A Lag?," NBER Working Papers 1454, National Bureau of Economic Research, Inc.
    2. John Bound & Clint Cummins & Zvi Griliches & Bronwyn H. Hall & Adam B. Jaffe, 1984. "Who Does R&D and Who Patents?," NBER Chapters,in: R&D, Patents, and Productivity, pages 21-54 National Bureau of Economic Research, Inc.
    3. Jacques Mairesse & Alan K. Siu, 1984. "An Extended Accelerator Model of R&D and Physical Investment," NBER Chapters,in: R&D, Patents, and Productivity, pages 271-298 National Bureau of Economic Research, Inc.
    4. Zvi Griliches, 1984. "R&D, Patents, and Productivity," NBER Books, National Bureau of Economic Research, Inc, number gril84-1, July.
    5. Pakes, Ariel S, 1986. "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," Econometrica, Econometric Society, vol. 54(4), pages 755-784, July.
    6. Hausman, Jerry & Hall, Bronwyn H & Griliches, Zvi, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," Econometrica, Econometric Society, vol. 52(4), pages 909-938, July.
    7. Thomas E. MaCurdy, 1981. "Asymptotic Properties of Quasi-Maximum Likelihood Estimators and Test Statistics," NBER Technical Working Papers 0014, National Bureau of Economic Research, Inc.
    8. Pakes, Ariel, 1985. "On Patents, R&D, and the Stock Market Rate of Return," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 390-409, April.
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    Citations

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    Cited by:

    1. Bronwyn H. Hall & Grid Thoma & Salvatore Torrisi, 2006. "The market value of patents and R&D: Evidence from European firms," KITeS Working Papers 186, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Nov 2006.
    2. Bronwyn H. Hall and Marie Ham., 1999. "The Patent Paradox Revisited: Determinants of Patenting in the US Semiconductor Industry, 1980-94," Economics Working Papers E99-268, University of California at Berkeley.
    3. Bronwyn H. Hall, 2010. "Measuring the Returns to R&D: The Depreciation Problem," NBER Chapters,in: Contributions in Memory of Zvi Griliches, pages 341-381 National Bureau of Economic Research, Inc.
    4. Hall, Bronwyn H., 1992. "Investment and Research and Development at the Firm Level: Does the Source of Financing Matter?," Department of Economics, Working Paper Series qt5j59j6x3, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    5. Artuç, Erhan & Pourpourides, Panayiotis M., 2014. "R&D and aggregate fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 54-71.
    6. 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.
    7. Klette, Tor Jakob & Griliches, Zvi, 2000. "Empirical Patterns of Firm Growth and R&D Investment: A Quality Ladder Model Interpretation," Economic Journal, Royal Economic Society, vol. 110(463), pages 363-387, April.
    8. Grid Thoma & Salvatore Torrisi, 2007. "Creating Powerful Indicators for Innovation Studies with Approximate Matching Algorithms. A test based on PATSTAT and Amadeus databases," KITeS Working Papers 211, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Dec 2007.
    9. Bronwyn H. Hall, 1999. "Innovation and Market Value," Finance 9902009, EconWPA.
    10. Joshua Gans & Scott Stern, 2003. "When does funding research by smaller firms bear fruit?: Evidence from the SBIR program," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 12(4), pages 361-384.
    11. Erik Brouwer & Alfred Kleinknecht & Pierre Mohnen & Hans van Ophem, 2001. "R&D and Patents: Which Way Does the Causality Run?," CIRANO Working Papers 2001s-31, CIRANO.
    12. Laarni Bulan & Paroma Sanyal, 2011. "Incentivizing managers to build innovative firms," Annals of Finance, Springer, vol. 7(2), pages 267-283, May.
    13. Svaleryd, Helena & Vlachos, Jonas, 2005. "Factor Supplies and the Direction of Technological Change," CEPR Discussion Papers 5086, C.E.P.R. Discussion Papers.
    14. Bronwyn H. Hall, 2006. "R&D, productivity and market value," IFS Working Papers W06/23, Institute for Fiscal Studies.

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