Participation in setting technology standards and the implied cost of equity

Xin Deng, Qian Li () and Simona Mateut

Research Policy, 2022, vol. 51, issue 5

Abstract: This study empirically investigates the financial market's reaction to firms’ participation in standard setting organizations (SSOs) in terms of firms’ implied cost of equity capital – the discount rate applied by investors to a firm's expected future cash flows. Our analysis utilizes a panel of 3350 US public firms and their membership of 183 SSOs operating in a range of technology domains between 1996 and 2014. It shows a significantly lower cost of equity for SSO participants. We then empirically document a causal link between SSO membership and a firm's cost of equity, by exploiting exogenous variations in membership count linked to SSO closures and an instrumental variable measuring SSO availability. Our results underscore the important role of SSO membership in mitigating the perceived riskiness of a firm, particularly when it faces high degrees of technological uncertainty, product-market uncertainty, and information asymmetry.

Keywords: Cost of equity; Uncertainty; Technology standards; Standard setting organizations (SSOs) (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Working Paper: Participation in setting technology standards and the implied cost of equity (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:51:y:2022:i:5:s0048733322000257

DOI: 10.1016/j.respol.2022.104497

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