Value Relevance of Nonfinancial Information: The Case of Patent Data

Abstract

This paper documents the value-relevance of nonfinancial information on the quantity and quality of inventive output for high-tech companies. We find that the number of patents and information on the quality of patents have consistently positive effects on stock prices. Interestingly, this information does not appear to diminish the value-relevance of accounting data on the firm's financial performance and R&D expenditures. Like findings reported by Amir and Lev (1996) for the wireless communications industry, these results suggest an important complementary relation between traditional financial information and nonfinancial data in the high-tech sector. The findings also lend credence to the suggestion of the AICPA Special Committee on Financial Reporting that firms disclose nonfinancial performance measures to provide insight into a company's operations. In particular, patent statistics concerning the quantity and quality of inventive output appears to sharpen the investor's perception of the ongoing value created by the firm's inventive and innovative activity.

JEL Classification: M41, M45, G12