Stakes and Stars: the Effect of Intellectual Human Capital on the Level and Variability of High-Tech Firms' Market Values

48 Pages Posted: 4 Aug 1999 Last revised: 2 Nov 2012

See all articles by Michael R. Darby

Michael R. Darby

University of California, Los Angeles (UCLA) - Global Economics and Management (GEM) Area; National Bureau of Economic Research (NBER)

Qiao Liu

The University of Hong Kong - School of Economics and Finance; Peking University - Guanghua School of Management

Lynne G. Zucker

University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

Date Written: June 1999

Abstract

High-tech firms are built much more on the intellectual capital of key personnel than on physical assets, and firms built around the best scientists are most likely to be successful in commercializing breakthrough technologies. As a result, such firms are expected to have higher market values than similar firms less well endowed. In this paper we develop and implement an option-pricing based technique for valuing these and similar intangible assets by examining the effect of ties to star scientists on the market value of new biotech firms. Since firms with more star ties are likely to have a greater probability per unit time of making a commercially valurable R&D breakthrough, we argue and confirm empirically that both the value of the firm and the likelihood of jumps in the value are increasing in the number of star ties. These effects can be financially as well as statistically significant: for two firms with mean values for other variables, the predicted increase in market value of a firm with one article written by a star as or with a firm employee is 7.3% or 16 million 1984 dollars compared to a firm with no articles.

Suggested Citation

Darby, Michael R. and Liu, Qiao and Zucker, Lynne G., Stakes and Stars: the Effect of Intellectual Human Capital on the Level and Variability of High-Tech Firms' Market Values (June 1999). NBER Working Paper No. w7201, Available at SSRN: https://ssrn.com/abstract=170773

Michael R. Darby (Contact Author)

University of California, Los Angeles (UCLA) - Global Economics and Management (GEM) Area ( email )

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Qiao Liu

The University of Hong Kong - School of Economics and Finance ( email )

School of Economics and Finance
Pokfulam
Hong Kong
Hong Kong
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852-2548-1152 (Fax)

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Lynne G. Zucker

University of California, Los Angeles (UCLA) ( email )

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Box 951361 Departments of Sociology and Policy Studies 2201 Hershey mc 155107
Los Angeles, CA 90095-1361
United States
310-825-3227 (Phone)

National Bureau of Economic Research (NBER)

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United States

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