Innovation and Firm Performance: Evidence from the Capital Market

Abstract:     
This paper examines the role of innovation in firm performance by drawing empirical evidence from the capital market. The current study analyzes risk premiums and risk-adjusted excess returns of a portfolio of the most innovative firms in the United States from 2006 to 2010. The results show that average risk premiums of an equal-weighted portfolio of the most innovative firms in the United States are economically larger than the CRSP value-weighted index risk premiums 4 years in a row from 2006 to 2009 and are economically greater than the S&P 500 index risk premiums from 2006 to 2010. The portfolio exhibits average statistically significant positive risk-adjusted excess returns for the 3-year and 5-year holding period intervals. The findings serve as evidence of the favorable role of innovation in firm performance.

Number of Pages in PDF File: 7

Keywords: risk premiums, risk adjusted excess returns, innovation

JEL Classification: G11, G12, G14

Accepted Paper Series