The impact of R&D in firm value across Europe

In this thesis the impact of R&D expenditures on firm market value and stock returns is examined. This is performed in a sample of European listed firms for the period 2000-2009. I apply different linear and GMM econometric estimations for testing the impact of R&D on market prices and construct country portfolios based on firms’ R&D expenditure to market capitalization ratio for studying the effect of R&D on stock returns. The results confirm that more innovative firms have a better market valuation,investors consider R&D as an asset that produces long-term benefits for corporations. The impact of R&D on firm value differs across countries. It is significantly modulated by the financial and legal environment where firms operate. Other firm and industry characteristics seem to play a determinant role when investors value R&D. First, only larger firms with lower financial leverage that operate in highly innovative sectors decide to disclose their R&D investment. Second, the markets assign a premium to small firms, which operate in hi-tech sectors compared to larger enterprises for low-tech industries. On the other hand, I provide empirical evidence indicating that generally highly R&D-intensive firms may enhance mispricing problems related to firm valuation. As R&D contributes to the estimation of future stock returns, portfolios that comprise high R&D-intensive stocks may earn significant excess returns compared to the less innovative after controlling for size and book-to-market risk. Further, the most innovative firms are generally more risky in terms of stock volatility but not systematically more risky than low-tech firms. Firms that operate in Continental Europe suffer more mispricing compared to Anglo-Saxon peers but the former are less volatile, other things being equal. The sectors where firms operate are determinant even for the impact of R&D on stock returns; this effect is much stronger in hi-tech industries.

Essays on Innovative Activity and the Protection of Innovations

This dissertation looks at three widely accepted assumptions about how the patent system works: patent documents disclose inventions; this disclosure happens quickly, and patent owners are able to enforce patents. The first chapter estimates the effect of stronger trade secret protection on the number of patented innovations. When firms find it easier to protect business information, there is less need for patent protection, and accordingly less need for the disclosure of technical information that is required by patent law. The novel finding is that when it is easier to keep innovations, there is not only a reduction in the number of patents but also a sizeable reduction in disclosed knowledge per patent. The chapter then shows how this endogeneity of the amount of knowledge per patent can affect the measurement of innovation using patent data. The second chapter develops a game-theoretic model to study how the introduction of fee-shifting in US patent litigation would influence firms’ patenting propensities. When the defeated party to a lawsuit has to bear not only their own cost but also the legal expenditure of the winning party, manufacturing firms in the model unambiguously reduce patenting, with small firms affected the most. For fee-shifting to have the same effect as in Europe, the US legal system would require shifting of a much smaller share of fees. Lessons from European patent litigation may, therefore, have only limited applicability in the US case. The third chapter contains a theoretical analysis of the influence of delayed disclosure of patent applications by the patent office. Such a delay is a feature of most patent systems around the world but has so far not attracted analytical scrutiny. This delay may give firms various kinds of strategic (non-)disclosure incentives when they are competing for more than a single innovation.

Entrepreneurial opportunities, capability development and the performance of new firms

This study aims at providing a theoretical framework encompassing the two approaches towards entrepreneurial opportunity (opportunity discovery and opportunity creation) by outlining a trajectory from firm creation to capability development, to firm performance in the short term (firm survival) and the medium/long term (growth rate). A set of empirically testable hypotheses is proposed and tested by performing qualitative analyses on interviews on a small sample of entrepreneurs and event history analysis on a large sample of firms founded in the United States in 2004.