A New Measure of Innovation
59 Pages Posted: 17 Jul 2015 Last revised: 27 Jul 2018
Date Written: July 1, 2018
In asset pricing and corporate finance, researchers often desire to study the causes or consequences of innovation. We propose a new innovation measure, RQ, defined as the firm-specific output elasticity of R&D. We perform a battery of innovation tests using the new RQ measure. We find that RQ is strong and statistically significant in common innovation tests from the literature, even after controlling for other innovation measures. In contrast, many of the literature’s previous innovation measures are less robust in our tests. Our results suggest that RQ may serve as a new variable in innovation studies.
Keywords: Innovation, Research Quotient, Firm Value, Patents, Citations
JEL Classification: O31, O32, G12, G14
Suggested Citation: Suggested Citation