Abstract
The relationship between R&D and market value has attracted the interest of many scholars within different fields, but scant attention has been paid to the countries with weak protection of intellectual property rights (IPR). This is unfortunate, since this problem is potentially highly relevant for IPR policy in developing countries. In particular, several questions arise when the problem of R&D market value is analyzed in a country where IPR protection is weak. First, there are concerns regarding incentives (i.e., private returns) for firms to invest in R&D when IPR is only weakly protected. Second, significant differences could emerge in the market valuation of R&D investments of domestic and foreign firms, above all in those industries where spillovers are more likely. To examine these issues, this paper investigates the market valuation of R&D investments of a panel of 219 R&D-reporting domestic and foreign firms publicly traded in India with an empirical analysis. First, the market valuation of the R&D capital for the whole sample is positive and higher than those obtained in U.S. or European countries from similar analyses. Second, in the sub-samples of the domestic and foreign firms, the market value of R&D investments of foreign firms is not significantly different from zero, while the valuation coefficient of domestic firms is four times higher than that obtained on the whole sample. Third, in science-based industries the difference between domestic and foreign firms is smaller than in the other industries. The policy implications of these findings are discussed.
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Notes
In line with previous literature (e.g. Teece 1986), for “appropriability regime” we intend the ensemble of conditions that allow the patent owner to appropriate the economic returns from innovation.
We are grateful to an anonymous referee for suggesting this further theoretical explanation.
Process patents are granted for a novel way of manufacturing a product using a different production process even if that product is covered by product patents elsewhere.
Recent studies have measured K using patent data (Bloom and Van Reenen 2002; Hall et al. 2005). We have preferred to use R&D data since the propensity to patent is critically affected by the strength of the IPR protection. Using patents to measure K in a country characterized by a weak IPR protection would not have provided a reliable measure.
Some authors have estimated industry-specific R&D depreciation rates, claiming that the economic depreciation changes across industries (Lev and Sougiannis 1996). However, our interest was not in assessing the economic value of R&D capital, which will result from the estimation of our model, but in calculating its accounting value, which would have been available if accounting rules had requested R&D investments to be capitalized in the balance sheet and depreciated at a constant rate.
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Acknowledgments
We thank Chirantan Chatterjee, two anonymous referees and the participants at the 6th International Triple Helix Conference and the 2007 Annual Meeting of the Academy of Management for helpful comments. We gratefully acknowledge the financial support of the project “The Economic Valuation of Patents” financed by the European Investment Bank.
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Chadha, A., Oriani, R. R&D market value under weak intellectual property rights protection: the case of India. Scientometrics 82, 59–74 (2010). https://doi.org/10.1007/s11192-009-0042-x
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DOI: https://doi.org/10.1007/s11192-009-0042-x