Firm market valuation and intellectual property assets

ABSTRACT

This paper investigates the relationship between the innovative activity of the top corporate R&D investors worldwide and their market valuation. The analysis exploits a sample of more than 1,250 publicly listed Multinational Corporations (MNCs) and their intellectual property rights (IPR) – patents and trademarks – filed between 2005 and 2012. The study contributes to the literature on the IPR-market value link by examining the premium resulting from the interactive use of different IPR. Moreover, the empirical setting allows differentiating the effects of an increase in market value derived from additional IPR (within-effects) with respect to the premium received for holding more IPR than the competitors (between-effects). The findings suggest that investors value the simultaneous use of the two IPRs and form their expectations by benchmarking firms. Finally, significant industrial specificities are observed in the individual effects of patents, trademarks and their interactions on the market value of firms.     

German Industrial Structure in Comparative Perspective

This paper analyses German manufacturing structure in comparison with other EU member states. The paper analyses trends in R&D expenditure and export market shares in the OECD countries, discussing how differences between national institutional frameworks may impact on the innovation strategies that domestic firms follow. It has recently been argued that there is an ‘innovation crisis’ within Germany. The available evidence shows that although Germany is maintaining an overall comparative advantage in R&D intensive industries, this is no longer the case in very high-technology industries.     

R&D and firm performance in the semiconductor industry

While the semiconductor industry is still dominated by large vertically integrated firms, fabless firms, which outsource their manufacturing, are gaining market share. Fabless firms are considered to have an advantage in product innovation, as they can focus their innovation efforts on chip design and can benefit from investments in process innovation made by their manufacturing partners. However, there is little empirical evidence of the performance of fabless firms compared to vertically integrated firms. This research empirically examines the relationship between R&D and the financial performance of fabless and vertically integrated firms from 2000 to 2010. Our results show that fabless firms maintain higher gross and net margins, earn a higher return on assets (ROA) and have greater intangible value (Tobin’s q) than vertically integrated firms when controlling for size, capital intensity and R&D ratio (R&D/sales). This supports the argument that fabless firms achieve greater performance by focusing on one part of the innovation process. The relationship of R&D ratio to net margin is negative for the whole sample, suggesting that the industry may be overinvesting in R&D. Notably, the negative relationship is greater for fabless firms, which spend a higher amount of their sales on R&D. The relationship of R&D ratio to ROA and Tobin’s q is negative, and there is no significant difference between fabless and integrated firms. We conclude that fabless firms outperform integrated firms overall, but are somewhat worse in terms of increasing profits and creating value from their R&D investments.     

Foreign Subsidiaries and Technology Sourcing in Spain

Firms acquire external technological knowledge via different channels. In this paper, we compare the technology sourcing of foreign subsidiaries and domestic firms looking at domestic R&D outsourcing, international R&D outsourcing, domestic cooperation for innovation and international cooperation for innovation. We use data from the Spanish Technological Innovation Panel for the years 2005–2009 for 10,206 innovative firms operating in Spain. We apply a multivariate probit specification which allows for systematic correlations among the different choices. The results show that the different technology sourcing choices are interdependent and that foreign subsidiaries show a different pattern of external technology sourcing. Compared to affiliated domestic companies, foreign subsidiaries show a smaller propensity for external technology sourcing via R&D outsourcing from independent firms in the host country, for international R&D outsourcing and for international cooperation for innovation. In contrast, foreign subsidiaries show a greater propensity for domestic cooperation for innovation. However, foreign subsidiaries are not a homogenous group in this respect.     

Post-Catch-Up Strategy for Medium-Sized South Korean Firms: Improving Technological Capabilities by Balancing R&D Intensity and Open Innovation

Abstract

This study examines how R&D intensity and open innovation affect the technological capabilities of firms in newly-developed countries, such as South Korea. East Asian latecomers are transitioning from a catch-up phase toward becoming leaders, and they are engaging in open innovation activities to drive this transition. This research quantitatively analyzes three kinds of open innovation activities—outside-in, inside-out, and coupled—to investigate their influence upon technological capabilities, while also considering the effect of R&D intensity. Data from 75 South Korean medium-sized firms were analyzed, and two major findings are reported. First, technological capabilities are enhanced by some open innovation activities and by R&D intensity. Second, R&D intensity negatively moderates the impact of open innovation activities on technological capabilities. Therefore, it may be concluded that firms with relatively low R&D intensity will gain the most benefit from increasing their open innovation activities.     

Determinants of internal and external R&D offshoring: evidence from Spanish firms

This paper analyses the determinants of R&D offshoring of Spanish firms using information from the Panel of Technological Innovation. We find that being an exporter, international technological cooperation, continuous R&D engagement, applying for patents, being a foreign subsidiary, and firm size are factors that positively affect the decision to offshore R&D. In addition, we find that a lack of financing is an obstacle relatively more important for independent firms than for firms that belong to business groups. For these latter, we also obtain that the factors that influence the decision to offshore R&D differ depending on whether the firm purchases the R&D services within the group or through the market: a higher degree of importance assigned to internal sources of information for innovation as compared to market sources increases (decreases) the probability of R&D offshoring only through the group (market).     

Policy-Induced Environmental Technology and Inventive Efforts: Is There a Crowding Out?

Substantial policy effort is devoted to stimulate environmentally friendly technology through regulation and subsidies. Since innovation is a crucial productivity driver, a potential crowding out of inventive efforts in affected firms may increase the cost of regulation. We study the effects of regulation-induced environmental technology on innovation activities for a sample of firms in Germany. We find some evidence for a crowding out of firms' in-house R&D, especially for firms facing financing constraints. Innovation outcomes and investments in innovation-related fixed assets are not affected. Moreover, subsidy-backed environmental technology does not crowd out R&D.     

Heterogeneous Partners,R&D cooperation and corporate innovation capability: Evidence from Chinese manufacturing firms

In this paper, we examine the differential impact of cooperation with heterogeneous partners on firms' innovation capabilities. We use the number of joint patent applications of Chinese manufacturing firms from 2008 to 2018 to measure cooperation with different types of partners and the number of corporate patents to measure the innovation capability of firms. The results indicate that R&D cooperation with other enterprises, universities, and research institutions all have a significantly positive impact on the innovation capability of enterprises. However, R&D cooperation with universities or research institutions has a higher positive impact on innovation capability than that with other firms. Different internal and external factors moderate the relationship between heterogeneous partners and the innovation capability of firms. Specifically, firms with higher absorptive capacity will benefit more from R&D cooperation with corporate partners. In contrast, in industries with higher market concentration or where firms are at the technological frontier, cooperation with universities will positively impact their innovation capabilities. Further research demonstrates that absorptive capacity has a more positive moderating effect when the cooperation is between firms in the same industry, compared to R&D cooperation between firms in different industries.     

The Role of Time in Assessing the Economic Effects of R&D

This study investigates the impacts of R&D on firm performance. It extends previous research by constructing alternative stocks of R&D‐Capital that take into account that time plays an important role in assessing the pay‐off of industrial research. The results show that even when we employed R&D‐Capitals that placed more emphasis on the industrial research that had been undertaken 7 years ago, the effects of R&D were very (statistically) significant and relatively high, thereby suggesting that the life of R&D (on average) tends to be long. The results however, vary across organizations depending on both firm size and the technological opportunities that a company faces. It appears that the depreciation rate of R&D investments is higher in the case of technologically sophisticated firms. In contrast, strategic investments in industrial research generate a relatively constant effect on the performance of other firms, supporting the notion that the corresponding returns for such firms decay slowly.     

Environmental Dynamism,Firm Size and the Economic Productivity of R&D

The effects of firm size on innovative activity have been extensively debated in the literature, with generally inconclusive results. This study poses a contingent framework in which environmental dynamism moderates the effects of firm size on the returns to research and development (R&D) investments. We hypothesize that dynamic environments favor small firms, as they reward organizational flexibility and promote the development of the markets for technology. Empirical evidence obtained on a sample of Spanish manufacturing firms shows that technological, but not market, dynamism negatively moderates the effects of firm size on the economic productivity of R&D, thus contributing to the success of research efforts by small firms vis-à-vis those of larger corporations.     

Composite value index of trademark indicators: A market value analysis using Tobin's Q

This paper provides novel empirical evidence on the market valuation of a firm's intangible assets for U.S. firms during the period 1991–2015, exploring the relationship between Tobin's q, R&D, advertising, utility patents, international patent applications, design patents, trademarks, and value weighted IP measures. The Tobin's q is found to be positively and significantly associated with the proposed composite value index of trademark indicators above and beyond the other measures of intangible assets. The paper articulates some managerial implications on how firms could benefit from investing in trademarking and enlarge market value through the combination of multiple IP strategies.     

The effects of R&D subsidies and network embeddedness on R&D output: evidence from the German biotech industry

Although policy makers subsidize firms’ R&D projects to increase innovational output in an industry, region, or country, it remains unclear whether such subsidization triggers additional R&D efforts or crowds out private investments. To address this question, we assess the effectiveness of subsidization for individual and collaborative research in the German biotech industry while also examining the relevance of network embeddedness for patent output. Our results indicate that subsidies do lead to increased patent output, with additional benefits from involvement in more than one project. However, the amount of money is only significant under certain circumstances. Also, it is higher degree centrality in the firm network that significantly increases R&D success.     

Investments for New Product Development: A Break-Even Time Analysis

Abstract

Combining the product-process matrix and cost-volume-profit analysis, we identify a pattern of annual cash flows for new product development (NPD) and name it the New Product Investment Curve (NPIC). A sample of 411 firms provides confirming evidence for the NPIC. On average, firms needed 12 years to recover their initial and subsequent investments for NPD. The break-even time, however, exhibits significant differences across industries depending on the speed of innovation and the cost structure of each industry. Engineering managers in an industry with high R&D and high fixed costs need to prepare for longer break-even times than those in other industries. This article provides implications for the value of cooperation between engineering managers and financial managers in NPD.     

R&D,worker training and innovation: firm-level evidence

Firms that invest in R&D and also in worker training are expected to be successful innovators; yet, the extent to which these investments are mutually reinforcing has not been established. This paper addresses that question by analysing the decision to innovate and the number of innovations introduced. Our findings, which are based on a sample of Spanish manufacturing firms, confirm that R&D is more effective when firms also invest in worker training. Moreover, for some smaller firms, investing in workers’ skills (via training programs) boosts innovation even in absence of R&D. Meanwhile, on-the-job training in large firms might serve mainly to reinforce the effects of R&D. Regarding the number of innovations, our result signals that a higher absorptive capacity via higher ability of qualified workers (through schooling or training) leads to improved innovation performance.     

Effects of China''s communication industry policy on domestic cellphone manufacturers

China's economy has matured so dramatically recently that it has become a major player as well a huge market, eyed eagerly by the rest of the world. In the communications industry, China is focused on extending the market share of domestic vendors by combining an overarching industrial policy with the supply and demand of the domestic market. The policy for the cellphone industry resulted in domestic vendors seeking a greater market share of domestic brand names. Due to these policies, gaining market share became a top priority for China's cellphone manufacturers, and domestic vendors paid less attention to enhancing their innovative capacities. Today, the manufacturing and technological capability of China's cellphone industry needs improvement. Therefore, due to industry policy, capital, cost, and risk issues, latecomers in the 3C (computer, communications, and consumer) industries in developing economies often expand their market share first before they engage in R&D. Today, the Chinese government is promoting domestic intermediate-goods vendors, such as the communications IC industry, to build an upstream component supply stream that will help promote the R&D capability of China's cellphone manufacturers.     

Non-linear dynamics of innovation activities over the business cycles: Empirical evidence from OECD economies

This study examines the non-linear and asymmetries of innovation activities in thirty-six OECD countries for the period 1981Q1-2019Q4. The impulse response function and historical decompositions were estimated to check the cyclical property of innovation activities (R&D expenditures, residential patents, non-residential patents, and international collaboration in technology development) during the boom and recessions. The impulse response function provided three important results. First, the results indicated that the R&D expenditures moves pro-cyclically in response to the gross domestic product (GDP), exports, imports, and gross fixed capital formation in both the boom and recession periods. Second, the findings suggested that patents (residential and non-residential) move pro-cyclically in response to GDP, exports, imports, labor force, R&D expenditures, and gross fixed capital formation shocks in the boom and recession periods. Third, variables including, R&D expenditures, GDP, exports, labor force, imports, and gross fixed capital formation shocks significantly affected patents (residential and non-residential) during the boom and recession periods across the sampled OECD states. Fourth, the results also suggested that the international collaboration in technology development moves pro-cyclically in response to GDP, R&D expenditures, exports, imports, labor force, and gross fixed capital formation shocks in the boom and recession periods.     

Do R&D Spinoffs have Higher R&D Productivity? Evidence from Taiwanese Electronics Firms

The startup mode of spinoffs founded by R&D employees (R&D spinoffs) within the same industry is widespread in high-tech industries. The founders usually own specific human capital and key technological capability, enabling them to take the operational risk and to appropriate rewards of innovations under the industrial environment of rapid technological change. Whether high-tech R&D spinoffs, compared to their other spinoff counterparts, have better R&D productivity remains less well explored. According to the conceptual discussion of the advantages of intangible innovation assets embodied in company founders, this study argues that the founders' innovation cognition, knowledge externalities, absorptive capability and routine experience can help R&D spinoffs to have higher R&D productivity. We thus propose three hypotheses that are then empirically tested. Based on a sample of Taiwanese electronics firms, the empirical findings show that R&D spinoffs invest with a higher R&D intensity and on average have more patents issued. More importantly, the microeconometric estimates show that the patent and output elasticities of the R&D of R&D spinoffs are significantly higher than those of other firms, indicating that they actually have higher R&D productivity.     

R&D Strategy,Metropolitan Externalities and Productivity: Evidence from Sweden

This paper studies the influence of metropolitan externalities on productivity for different types of long-run R&D engagement based on information from the Community Innovation Survey. We apply a dynamic general method of moments model to a panel of manufacturing and service firms with different locations in Sweden, classified as a metropolitan region, the largest metropolitan region, a metropolitan city, the largest metropolitan city and a nonmetropolitan area. This analysis generates three distinct results. First, the productivity premium associated with persistent R&D is close to 8 per cent in nonmetro locations and about 14 per cent in the largest city. Second, a firm without any R&D engagement does not benefit at all from the external milieu in metro areas. Third, no productivity premium is associated with occasional R&D effort regardless of the firm's location.     

Simultaneous Impact of the Presence of Foreign MNEs on Indigenous Firms’ Exports and Domestic Sales

Incorporating the global production network approach and competitor analysis, this paper establishes an analytical framework with two hypotheses for the role of foreign multinational enterprises (FMNEs) in indigenous firms’ exports and domestic sales. First, the presence of FMNEs as a whole is likely to have a negative impact on indigenous firms’ domestic sales but a simultaneous positive impact on their exports in an emerging economy like China. Second, the presence of MNEs from Hong Kong, Macau and Taiwan (HMT MNEs) is more likely to generate this pattern of impact than MNEs from other countries (Other FMNEs). The foreign direct investment-led export strategy contributed to the dominance of the scenario described by the first hypothesis in China, while a higher degree of market commonality and resource similarity of HMT MNEs with that of indigenous Chinese firms than Other FMNEs leads to the second hypothesis. These novel hypotheses are tested and supported by a very large and recent firm-level panel dataset from Chinese manufacturing.     

R&D and Productivity in High-Tech Manufacturing: A Comparison between Italy and Spain

Using data for 12 manufacturing industries over the period 1980–2006, we perform for Italy and Spain a dynamic panel estimation of the long-run elasticity of total factor productivity (TFP) with respect to R&D capital. In spite of recording a level of R&D capital lower than Italian industries, the technology-based industries in Spain have experienced a similar or higher long-run impact on TFP. This is mainly attributable to what occurred from the mid-1990s onwards when, thanks to increasing R&D efforts, the Spanish industries have been able to catch up with respect to the Italian ones. These findings suggest that, also in countries classified as technology followers, R&D investment is a crucial condition for boosting manufacturing productivity.