The market value of patents and R&D

Abstract

This paper studies how R&D, patents and patent value indicators affect the market valuation of European firms. The information on individual patents from these firms is used to create portfolio averages, so called patent value indicators, which are linked to the firm data. The firm data consists of Tobin’s Q, age, employees, R&D expenditures, physical assets and patent publications. A nonlinear least squares regression is run to estimate the contribution of R&D, patent publications and the patent value indicators to the market valuation of European firms during the period 2011-2017. The results indicate that R&D and several value indicators, in particular the average number of claims, have a positive and significant effect on firm market value. This effect is especially notable for large firms and firms in West-Europe and Scandinavia. In addition, the results show that the inclusion of R&D and patents adds explanatory power to the market value equation.