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4. http://csdd.tufts.edu/files/uploads/Tufts_CSDD_briefing_on_RD_cost_study_-_Nov_18,_2014..pdf.
5. Ibid.
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2. Knott, A. (1994), GM Hughes Electronics, unpublished teaching case.
3. Ibid.
4. Coleman-Lochner, L., and C. Hymovitz (2012), “P&G’s 1,000 PhDs Not Enough to Crank Up New Blockbusters,” Bloomberg, September 12, 2012.
5. Ibid.
6. Brown, B., and S. Anthony (2011), “How P&G Tripled Its Innovation Success Rate,” Harvard Business Review, 89(6): 64–72.
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1. http://blog.trade-radar.com/2009/07/how-to-analyze-tech-stocks-7-factors.html.
2. http://www.forbes.com/sites/innovatorsdna/2016/05/18/how-we-rank-the-most-innovative-mid-cap-companies-2016/#365ddd49d7e3.
3. Note that some companies in the Forbes 100 aren’t in the figure because they either don’t conduct R&D or aren’t traded on U.S. exchanges (the source of the RQ data).
4. Damodaran, A. (2009), “Valuing Companies with Intangible Assets,” working paper.
5. Financial Accounting Standards Board (1974), Statement of Financial Accounting Standards No. 2: Accounting for Research and Development Costs.
6. As quoted in Hagerty, J. (2013), “50,000 Products but 3M Still Searching for Growth: CEO Thulin Sticks with Long-Term Research,” Wall Street Journal, November 18, 2013.
7. It may seem paradoxical that tying CEO compensation to stock price would favor R&D given my argument that the market doesn’t know how to value R&D. However, the market ultimately values the R&D once it shows up in profits. CEOs with a long-term perspective expect to stay long enough to capture that gain.
8. While these returns aren’t risk adjusted, the beta of the RQ50 is comparable to that of the S&P 500.
9. Knott, A.M., and C. Vieregger (2016), “The Puzzle of Market Value from R&D,” http://ssrn.com/abstract=2382885.
10. Cooper, M., A.M. Knott, and W. Yang (2016), “Measuring Innovation,” http://ssrn.com/abstract=2631655.
11. Note this is a shorthand valuation that assumes costs are changing in proportion to revenues.
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1. Hall, B., J. Mairesse, and P. Mohnen (2010), “Measuring the Returns to R&D,” Handbook of the Economics of Innovation, B. H. Hall and N. Rosenberg (eds.), North-Holland.
2. Cohen, W.M., R.R. Nelson, and J.P. Walsh (2000), “Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Companies Patent (Or Not),” NBER Working Paper 7552.
3. Abrams, D.S., U. Akcigit, and J. Popadak (2013), “Patent Value and Citations: Creative Destruction or Strategic Disruption?,” NBER Working Paper 19647.
4. For a summary, see Redding, S. (2010), “Theories of Heterogeneous Firms and Trade,” NBER Working Paper 16562.
5. If the R&D decision is made at the same time as those for other inputs, then all inputs should be jointly optimized. We make the simplifying assumption that because the benefits of R&D are lagged, it is chosen a year prior to the decisions for other inputs.
6. Thompson, P. (1996), “Technological Opportunity and the Growth of Knowledge: A Schumpeterian Approach to Measurement,” Journal of Evolutionary Economics, 6(1), 77–97; Lentz, R., and D. Mortensen (2008), “An Empirical Model of Growth Through Product Innovation,” Econometrica, 76(6), 1317–1373.
7. Knott, A.M., and C. Vieregger (2014), “An Empirical Test of Endogenous Company Growth,” SSRN working paper, http://ssrn.com/abstract=2382885.