Innovation and Technology Salience in Emerging Data-Intensive Domains: Catalysts for the Stock Market Valuation of Large Tech Companies

Abstract

This study explores how innovation in the emerging data-intensive technology domains affects the stock market valuation of large technology companies. It provides new insights by merging traditional frameworks for investors' valuations of firms' knowledge stocks with psychology-grounded financial theories. Our dataset of 109 technology companies from 2010 to 2019 reveals that innovations and knowledge stocks in artificial intelligence and financial services have significantly boosted firm value in the 2010s. In contrast, knowledge stocks in more mature ICT technology domains are not impactful. When a firm's knowledge stock value notably surpasses the average value in a given tech area, it generally leads to enhanced firm value, a trend more potent than merely having a knowledge stock in the distribution's right tail. Also, the observed positive relation between breakthrough innovation in emerging technology domains and firm value is intriguing. Our data provide more support for the salience theory than the propensity theory.

Keywords: firm value, Innovation, personal data, investor attention, salience theory, technology salience, prospect theory