As luck would have it : innovation and market value in "complex technology" sectors.

How do financial markets respond to firms' efforts at innovation ? To answer this question, we mesure innovation by creating a synthetic indicator based on a firm's recent history of R&D expenditure and patent applications. We focus on four 2-digit "complex technology" manufacturing sectors that have been hand-picked according to their high propensities to innovate. Whilst standard regression techniques find a positive relationship between innovation and growth, quantile regression analysis adds a new dimension to the literature. We identify those "superstar" firms with the highest stock market valuations and show that these firms owe a lot of their success to their previous efforts at innovation. However, there are also other firms whose attempts to innovate are virtually ignored by financial markets. Our results emphasize the fundamental uncertainty of R&D.