The association between technological conditions and the market value of equity

American Accounting Association
Publication Type:
Journal Article
The Accounting Review, 2008, 83 (2), pp. 479 - 518
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The objective of this study is to provide evidence on how technological innovation conditions underlying the firm's investments drive earnings growth and, hence, market value of equity. Technologies develop and flourish or die out through the combined investment decisions of those firms doing the inventing, and those firms that adopt those inventions, and thereby help to spread (or diffuse) the innovations into wider use. Hence, technology is important for the investment decisions of all firms, regardless of whether they patent. We focus on three aggregate measures of technological innovation conditions: the success rate of past technological investments, technology complexity, and the technology development period. We use the interactions between each of these three conditions with earnings to capture the combined effect on market value of a firm's technological innovation environment. Our sample comprises 12,594 U.S. firm years for the period 19902000 including firms actively producing new technologies and firms that adopt technologies for their processes and products.
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