The Value of Innovation: The Interaction of Competition,R&D and IP

This paper analyses market valuations of UK companies using a new data set of their R&Dand IP activities (1989-1999). In contrast to previous studies, the analysis is conducted at thesectoral level, where the sectors are based on the technological classification in Pavitt (1984).The first main result is that the valuation of R&D and IP varies substantially across thesesectors. To explore these variations the paper links competitive conditions with the marketvaluation of innovation. Using profit persistence as a measure of competitive pressure, wefind that the sectors that are the most competitive have the lowest market valuation of R&D.Furthermore, within the most competitive sector (‘science based’), firms with larger marketshares (an inverse indicator of competitive pressure) also have higher R&D valuations.Another important result is that, on average, firms that receive only UK patents tend to haveno market premium. In direct contrast, patenting through the European Patent Office doesraise market value, as does the registration of trade marks in the UK....