Does innovation increase shareholder value? While many researchers and practitioners believe that it does, little consensus surrounds the magnitude of the economic rents to innovation and the determinants of these rents, primarily because they vary across industries and ways in which innovation...

At the time of an initial public offering (IPO), firms seek to maximize their stock market value. The authors theorize and show that a firm’s innovation potential— firm outputs and activities that contribute to the development of future new products— can be used by the managers of IPO...