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Innovation Worth Buying: The Fair-Value of Innovation Benchmarks and Proxies

45 Pages Posted: 22 Jun 2017  

James Potepa

The George Washington University

Kyle T. Welch

George Washington University - School of Business

Date Written: June 21, 2017

Abstract

Innovation is notoriously hard to measure. Using a novel data set of the appraised value of itemized firm intangibles, we benchmark the validity of the many innovation proxies used in multiple literatures. This approach more accurately validates and calibrates the economic value of existing measures. We find that trademark counts, as well as the market response to new patents, are both significant and consistent predictors of innovation. However, our results indicate that three other commonly used proxies—patent count, citation-weighted patent count, and research and development expenditure—are not robust measures for the value of innovation but may capture the value of the advances a firm has already developed. Finally, we find that the appraiser valuations of identified brand innovations and in-process technology are consistent with the market’s pricing but that this is not true for developed technological assets.

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., Innovation Worth Buying: The Fair-Value of Innovation Benchmarks and Proxies (June 21, 2017). Available at SSRN: https://ssrn.com/abstract=2990481

James Potepa

The George Washington University ( email )

Washington, DC 20052
United States

Kyle Welch (Contact Author)

George Washington University - School of Business ( email )

Washington, DC 20052
United States

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