Patented knowledge capital and implied equity risk premium

Shantaram P. Hegde and Dev Mishra ()

Journal of Banking & Finance, 2023, vol. 148, issue C

Abstract: Patented knowledge capital improves the transparency of research and development expenditures, converts intangible intellectual property into collateralizable and salable assets, enhances sustained competitive advantage by enabling firms to weather business cycles, withstand obsolescence risk and competitive threats, and lowers future financing risk and growth uncertainties. Consistent with this conjecture, we find that knowledge capital, proxied by stocks of patents, their forward citations and estimated market value, is associated with lower future cost of equity as well as firm risk. These findings appear robust to controlling for the stock of R&D expenses, potential endogeneity concerns about firms’ innovative activities, controls for technology spillovers from industry rivals, and product market competition.

Keywords: Implied cost of equity; Fama-french three-factor model; Patents; Citations; Innovation (search for similar items in EconPapers)
JEL-codes: F3 G1 G3 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:148:y:2023:i:c:s0378426622003181

DOI: 10.1016/j.jbankfin.2022.106738

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