A Text-Based Analysis of Corporate Innovation
85 Pages Posted: 1 Jul 2016 Last revised: 9 Jun 2019
Date Written: April 10, 2019
We develop a new measure of innovation using a textual analysis of analyst reports of S&P500 firms. Our text-based measure gives a useful description of innovation by firms with and without patenting and R&D. For non-patenting firms, the measure identifies innovative firms that adopt novel technologies and innovative business practices (e.g., Walmart’s cross- geography logistics). For patenting firms, the text-based measure strongly correlates with valuable patents, which likely capture true innovation. The text-based measure robustly forecasts greater firm performance and growth opportunities for up to four years, and these value implications hold just as strongly for innovative non-patenting firms.
Keywords: Innovation, Text Analysis, Analyst Reports, Patenting
JEL Classification: O3, G3, M41
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