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The Management of Intellectual Property

Edited by Derek Bosworth and Elizabeth Webster

This book brings together innovative contributions on the management of intellectual property (IP) and intellectual property rights by an esteemed and multi-disciplinary group of economists, management scientists, accountants and lawyers.
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Chapter 6: Market Valuation of US and European Intellectual Property

Dirk Czarnitzki, Bronwyn H. Hall and Raffaele Oriani


Dirk Czarnitzki, Bronwyn H. Hall and Raffaele Oriani 1 INTRODUCTION Innovation is generally considered to be a major cause of economic growth and is an important source of the wealth of developed countries. A necessary condition for private innovative activity is, however, that innovation has a positive impact on profits of a firm. Because the returns to innovation rarely occur during the period in which investments in innovation occur, and in fact, may be spread over a number of years following such investment, current profits are generally a very partial and incomplete indicator of the returns to innovation. For this reason a number of researchers have turned to stock market value as an indicator of the firm’s expected economic results from investing in knowledge capital, following the seminal contribution by Griliches (1981). It has to be noted that this method is intrinsically limited in scope, because it can be used only for private firms and only where these firms are traded on a well-functioning financial market. Nevertheless, using financial market valuation avoids the problems of timing of costs and revenues, and is capable of forward-looking evaluation, something that studies analysing profitability during a given period of time are not able to do. Furthermore, the method is potentially useful for calibrating various innovation measures, in the sense that one can measure their economic impact and possibly enabling one to validate these measures for use elsewhere as proxies for innovation value. Interest in valuing innovation assets stems from several...

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