RQ Innovative Efficiency and Firm Value
60 Pages Posted: 17 Jul 2015 Last revised: 20 May 2019
Date Written: May 17, 2019
In asset pricing and corporate finance, researchers often desire to study the causes or consequences of firm innovation. To date innovation has been measured a number of ways: by its inputs, by its outputs, as well as by the innovative efficiency of converting inputs to outputs. We introduce and test a firm-level innovation efficiency measure new to the finance literature. The measure is RQ, defined as the firm-specific output elasticity of R&D, was first developed in the management literature. RQ has low correlation with existing input, efficiency, and output measures. We test RQ in a number of innovation tests common to the finance literature and find that RQ is robust in all tests of firm value even after controlling for previous innovation measures. The results suggest that RQ may serve as a relevant complementary measure of a company’s innovation.
Keywords: Innovation, Research Quotient, Firm Value, Patents, Citations
JEL Classification: O31, O32, G12, G14
Suggested Citation: Suggested Citation