Basic Innovation and Firm Performance

Burak Dindaroglu

No 1301, Working Papers from Izmir University of Economics

Abstract: I study the effects of basic and applied innovation on a firm's market value and total factor productivity for a panel of U.S. manufacturing firms. Basicness of innovation is measured by the index of generality proposed by Trajtenberg, Henderson and Jaffe (1997), and basic and applied innovation stocks are proxied by the stocks of patents that score at the relevant tails of the generality distribution. I find that the market valuation and productivity effects of basic and applied innovation are drastically different. Market value is positively associated with a firm's applied innovation stock, but it exhibits no association with its basic innovation stock. On the other hand, patents at the higher (resp. lower) quartiles of the generality distribution are positively (resp. negatively) associated with total factor productivity and productivity growth. Therefore, complementing previous studies on basic research, I find that the basicness of innovation is associated with a productivity premium.

Keywords: Basic innovation; Applied innovation; Patents; Citations; Generality; Market value; Tobin's q; Productivity. (search for similar items in EconPapers)
JEL-codes: L60 O31 O33 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2013-03
New Economics Papers: this item is included in nep-cse, nep-eff, nep-ino, nep-ipr, nep-pr~, nep-knm, nep-sbm and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:izm:wpaper:1301

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