RQ Innovative Efficiency and Firm Value

60 Pages Posted: 17 Jul 2015 Last revised: 20 May 2019

See all articles by Michael J. Cooper

Michael J. Cooper

University of Utah - David Eccles School of Business

Anne Marie Knott

Washington University in St. Louis - John M. Olin Business School

Wenhao Yang

University of South Carolina - Darla Moore School of Business

Date Written: May 17, 2019

Abstract

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

Cooper, Michael J. and Knott, Anne Marie and Yang, Wenhao, RQ Innovative Efficiency and Firm Value (May 17, 2019). Available at SSRN: https://ssrn.com/abstract=2631655 or http://dx.doi.org/10.2139/ssrn.2631655

Michael J. Cooper (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Anne Marie Knott

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1156
St. Louis, MO 63130-4899
United States

Wenhao Yang

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States

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