Innovation and Firm Value Revisited: Evidence from a DCF Valuation. Approach across the Entire Firm Size Spectrum

Lars Van Cutsem, Marleen Willekens and Koenraad Debackere

No 742970, Working Papers of Department of Management, Strategy and Innovation, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Management, Strategy and Innovation, Leuven

Abstract: In this study, we leverage the Discounted Cash Flow (DCF) valuation methodology to reexamine how innovation links to economic value estimates of firms, and how size moderates this relationship. As DCF valuation can be applied to a complete spectrum of firm sizes, ranging from small privately-held to large publicly-listed firms, our study provides more exhaustive evidence on the link between innovation and economic firm value across for all types of firms. This contrasts prior studies that typically draw inferences based on market valuations of publicly listed firms. We show that innovation is positively and statistically significantly related to the economic value in both large and small firms, and that firm size negatively moderates this link. Notably, innovation is more substantially linked to the economic value estimates of small firms than larger ones. These findings are robust to various controls, alternative operationalisations, including survey-reported innovation in the Community Innovation Survey (CIS), and a battery of robustness tests for the DCF valuation approach.

Date: 2024
New Economics Papers: this item is included in nep-cfn, nep-cse, nep-ino, nep-sbm and nep-tid
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