Modelling stock market performance of firms as a function of the quality and quantity of intellectual property owned

This thesis attempts to analyze a part of the big and complex process of how intellectualproperty ownership and technological innovation influence the performance of firms andtheir revenues. Here I analyze a firm's stock market performance as a function of thequantity and quality of intellectual property (patents) owned by the firm in context of thethree US high-technology sectors, Pharmaceuticals, Semiconductors and Wireless. Inthese sectors, value of a firm is predominantly driven by the technologies which a firmowns. I use citation based indicators and number of claims to measure the quality ofpatents. This research presents empirical evidence for the hypothesis that in high-techsectors, companies which generate better quality intellectual property perform better thanaverage in the stock market. I also posit that firms which are producing better qualitytechnologies (good R&D) invest more in R&D regardless of their market performance.Furthermore, though smaller firms get relatively less returns on quality and quantity ofinnovation, they tend to invest a bigger fraction of their total assets in R&D when theyare generating high quality patents. Larger firms enjoy the super-additivity effects interms of market performance as the same intellectual property gives better returns tothem. In addition, returns to R&D are relatively higher in the pharmaceutical industrythan semiconductor or wireless industries.