Innovation and the Market Value of Firms

Abstract

Does innovation increase shareholder value? While many researchers and practitioners believe that it does, little consensus surrounds the magnitude of the economic rents to innovation and the determinants of these rents, primarily because they vary across industries and ways in which innovation is measured. This chapter has three main goals. First, I present a structured overview of prior research, summarizing what we currently know about the relation between innovation and shareholder value and the determinants of this relation. Second, I discuss several stock market-based metrics used in previous studies and the type of data necessary to appropriately utilize these metrics. Finally, I identify topics in need of future research and I propose a research agenda for the innovation domain.