Calibrating Innovation Proxies with an Accurate Tobin’s Q and Appraised Innovation Value

55 Pages Posted: 22 Jun 2017 Last revised: 12 Jun 2018

James Potepa

The George Washington University

Kyle T. Welch

George Washington University - School of Business

Date Written: May 23, 2018

Abstract

Researchers have used patent counts, citation weighted patent counts, as well as research and development spending to measure innovation with, at times, conflicting results. We benchmark the validity of these innovation proxies using a novel data set of appraised tangible and intangible assets. This new approach enables the correct replacement cost specification for Tobin’s Q and provides an appraisal of innovation assets. Additionally, we include trademarks as a new proxy to capture un-patentable and undisclosed innovation. We find that two innovation proxies, the market response to new patents and trademark counts, are both significant and consistent predictors of a corrected Tobin’s Q and the value of innovation assets. However, our results indicate that three other proxies — patent count, citation-weighted patent count, and research and development expenditure — are not robust measures for capturing innovation.

Keywords: Innovation, Fair-Value, Accounting, Patents, Trademarks, Trade Secrets, in-process technology, Technology

JEL Classification: O3, O31, O32, O33, G34, G32, M4, M41

Suggested Citation

Potepa, James and Welch, Kyle T., Calibrating Innovation Proxies with an Accurate Tobin’s Q and Appraised Innovation Value (May 23, 2018). Available at SSRN: https://ssrn.com/abstract=2990481 or http://dx.doi.org/10.2139/ssrn.2990481

James Potepa

The George Washington University ( email )

Washington, DC 20052
United States

Kyle T. Welch (Contact Author)

George Washington University - School of Business ( email )

Washington, DC 20052
United States

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