![Sample our Economics, Finance,Business & Industry journals, sign in here to start your access, latest two full volumes FREE to you for 14 days]({"type":"image" , "src" : "/sda/5931/TOC-Subject-Sample-2021-Economics-Finance-Business-Industry.jpg"})
Abstract
It is known that innovations in the market value of manufacturing firms and their R&D expenditures are related (Pakes 1985, 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 a indicator of the value of the underlying patents: under reasonable assumptions on the value distribution. the changes in patenting rates can account for only a small fraction of the changes in the stock market value of the firm, and hence provide essentially no additional information beyond what is already contained in the R&D variables. 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.