The Relation between Patent Citations and Tobin's Q in the Semiconductor Industry
Hilary Shane and
Review of Quantitative Finance and Accounting, 1997, vol. 9, issue 2, 131-46
The market value of a firm is largely determined by the expected returns to the firm's tangible and intangible assets. However, accounting data generally excludes intangible assets. Financial variables which are constructed in part from accounting data, such as Tobin's Q, are thus biased. If measures of intangible capital are successful in explaining variation in Q, then a case can be made for incorporating such measures into future research. In high technology industries, such as the semiconductor industry, valuing a firm's intangible asset requires the valuation of its technological capital Past studies have relied heavily on simple patent counts and research and development expenditures to quantify the technological component of a firm's intangible assets. This paper examines the ability of measures of intangible capital to explain variation in Q and considers an additional data source, patent citations we find that stock variables created from citation data contain relevant information about the market's valuation of intangible assets. Copyright 1997 by Kluwer Academic Publishers
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