Technology Switch Option and the Market Value of the Firm: A Model and an Empirical Test

A correct assessment of the innovation activities is critical to firm performance. To this purpose, some authors have analyzed the relationship between innovation and firm's market value within a framework based on the real options theory. However, in these papers there is not an explicit modeling of the 'real options'. Our model of market value formally includes a technology switch option, which allows the firm to exchange one technology with another when it achieves a major innovation. The model also accounts for the stochastic nature of the innovation. We test the model on a panel of publicly traded British firms operating in different manufacturing industries. The results provide support to the claim that the stock market recognizes and evaluates a technology switch option.A correct assessment of the innovation activities is critical to firm performance. To this purpose, some authors have analyzed the relationship between innovation and firm's market value within a framework based on the real options theory. However, in these papers there is not an explicit modeling of the 'real options'. Our model of market value formally includes a technology switch option, which allows the firm to exchange one technology with another when it achieves a major innovation. The model also accounts for the stochastic nature of the innovation. We test the model on a panel of publicly traded British firms operating in different manufacturing industries. The results provide support to the claim that the stock market recognizes and evaluates a technology switch option.Non-Refereed Working Papers / of national relevance onl

Privatization and R&D Performance: An Empirical Analysis Based on Tobin's q

In this paper, we analyze the impact of privatization on the firms' R&D performance. We expect that, in the early period after privatization, path dependencies still negatively affect the efficiency of R&D operations. We test our hypothesis using a Tobin's q measure and estimating a hedonic model, already adopted by several scholars to assess the impact of innovation related assets on the firm's market value (Griliches, 1981). We estimate the regression model on an original panel data of 40 firms, including 20 firms privatized through public share offering in different countries of Western Europe over the period 1982-1997 that were matched at the country and industry level with 20 publicly held firms. Our results show that stock markets evaluate R&D investments of newly privatized companies less than R&D investments of industry-matched companies.In this paper, we analyze the impact of privatization on the firms' R&D performance. We expect that, in the early period after privatization, path dependencies still negatively affect the efficiency of R&D operations. We test our hypothesis using a Tobin's q measure and estimating a hedonic model, already adopted by several scholars to assess the impact of innovation related assets on the firm's market value (Griliches, 1981). We estimate the regression model on an original panel data of 40 firms, including 20 firms privatized through public share offering in different countries of Western Europe over the period 1982-1997 that were matched at the country and industry level with 20 publicly held firms. Our results show that stock markets evaluate R&D investments of newly privatized companies less than R&D investments of industry-matched companies.Refereed Working Papers / of international relevanc

Alliance Activity as a Dynamic Capability: Search and Internalization of External Technology.

Previous research has often seen alliances as a mechanism used by disadvantaged firms to seek new capabilities. But are alliances an effective dynamic capability? We find that less competent firms can use alliances to access new technologies, but more competent firms are superior in internalizing new capabilities from their alliances.Previous research has often seen alliances as a mechanism used by disadvantaged firms to seek new capabilities. But are alliances an effective dynamic capability? We find that less competent firms can use alliances to access new technologies, but more competent firms are superior in internalizing new capabilities from their alliances.Refereed Working Papers / of international relevanc

Information Asymmetries, Family Ownership and Divestiture Financial Performance: Evidence from Western European Countries

Abstract: Combining agency theory and information asymmetry literature this paper examines the controversial relationship between family ownership and the stock market reaction to a divestiture event. We employ a unique dataset of 265 divestiture transactions in West European countries. We reveal that in presence of high information asymmetries the stock market’s positive reaction will be lowered by a higher perception of the risk of opportunistic behaviours that controlling owners may carry out to the detriment of minority shareholders

Does co-location accelerate knowledge outflows from FDI? The role of MNC subsidiaries' technology sourcing strategies

Despite the strategic importance of the knowledge outflows from FDI for local firms’ competitiveness, no study has focused on the speed at which this phenomenon takes place. However, this issue is crucial since the speed at which firms absorb external knowledge influences the time they need to carry out subsequent innovations, their ability to adapt to external changes and enter new markets, thus ultimately affecting their chances to achieve a competitive advantage. This paper tries to fill this gap, by investigating the temporal patterns of knowledge outflows between foreign subsidiaries and firms located in host-regions. Combining International Business literature with insights on Innovation Strategy, we provide evidence on the timing of this phenomenon, and discuss the role played by multinational firms’ technology sourcing strategies

Alliance activity as a dynamic capability in the face of a discontinuous technological change

Using a dynamic capabilities lens, this study examines how technological and complementary capabilities affect firms’ abilities to enter emerging technologies. The empirical evidence from a sample of pharmaceutical firms entering the new biotech fields indicates that both technological and complementary capabilities potentially affect firms’ entry into emerging technologies and entry mode. However, the results also show that capabilities in the traditional technology and the emerging technology have different effects. Firms with capabilities in the emerging technology are more likely to enter new technological fields and more likely to use internal development in doing so. Complementary capabilities also increase the rate of entry into emerging technological fields. However, capabilities in traditional technology are found to be unrelated to the propensity to enter new fields, and to the choice of entry mode. These results are consistent with insights from the literature on dynamic capabilities and evolutionary theory. We examine the implications of these results for literatures on strategic alliances and technological competition.Fil: Anand, Jaideep. Ohio University; Estados UnidosFil: Oriani, Raffaele. Luiss Guido Carli University; ItaliaFil: Vassolo, Roberto Santiago. Universidad Austral. Instituto de Altos Estudios; Argentina. Consejo Nacional de Investigaciones Científicas y Técnicas; Argentin

Do Stock Markets Value Innovation? A Meta-analysis

We analyze whether stock markets value innovation by performing a meta-analysis of the empirical literature linking R&D investments and firms' market value. While there is an increasing interest in the attention paid by financial markets to firm level innovation activities, the theoretical debate and the empirical results presented by a growing number of studies performed within different disciplinary domains still oscillate between markets myopia and markets efficiency. We contribute to resolve this indecision applying Hunter and Schmidt (1990) correction procedures on existing studies estimating the impact of different corporate assets on the market value of the firm. After correcting for random sources of variations and possible problems with the reliability of the independent and the dependent variables, we show that the R&D-market value relationship is consistently positive and that the market values one currency unit invested in R&D activities as much or more than one currency unity invested in tangible assets. Moreover, we use a fully factorial regression model to assess the magnitude of the reported coefficients against a set of sample specific and design specific variables. Our results show that, when other intangible assets are considered, the market valuation of firms' R&D investments generally lowers. Moreover, whereas adding industry-level controls seems to better specify the relationship between R&D investment and market value, firm-level variables do not substantially affect the results. Implications for research and practice are presented and discussed.We analyze whether stock markets value innovation by performing a meta-analysis of the empirical literature linking R&D investments and firms' market value. While there is an increasing interest in the attention paid by financial markets to firm level innovation activities, the theoretical debate and the empirical results presented by a growing number of studies performed within different disciplinary domains still oscillate between markets myopia and markets efficiency. We contribute to resolve this indecision applying Hunter and Schmidt (1990) correction procedures on existing studies estimating the impact of different corporate assets on the market value of the firm. After correcting for random sources of variations and possible problems with the reliability of the independent and the dependent variables, we show that the R&D-market value relationship is consistently positive and that the market values one currency unit invested in R&D activities as much or more than one currency unity invested in tangible assets. Moreover, we use a fully factorial regression model to assess the magnitude of the reported coefficients against a set of sample specific and design specific variables. Our results show that, when other intangible assets are considered, the market valuation of firms' R&D investments generally lowers. Moreover, whereas adding industry-level controls seems to better specify the relationship between R&D investment and market value, firm-level variables do not substantially affect the results. Implications for research and practice are presented and discussed.Uninvited Submission