Journal of Financial and Quantitative Analysis Vol. 57 No. 5 2022

RQ Innovative Efficiency and Firm Value

Michael J. Cooper¹; Anne Marie Knott²; Wenhao Yang^3,4

¹ University of Utah · ² Washington University in St. Louis · ³ Chinese University of Hong Kong · ⁴ Chinese University of Hong Kong, Shenzhen

Abstract

We introduce and test a firm-level innovation-efficiency measure new to the finance literature. The measure, termed the research quotient (RQ), defined as the firm-specific output elasticity of research and development (R&D), was first developed in the management literature. RQ has a low correlation with existing innovation input, output, and efficiency measures. We test RQ in a number of innovation tests common to the finance literature and find that RQ is robust in all tests of firm value, even after controlling for previous innovation measures. The results suggest that RQ may serve as a relevant complementary measure of a company’s innovation.

DOI

10.1017/s0022109021000417

Volume

57

Issue

5

Pages

1649-1694

Language

en

Sources

openalex crossref

Cite

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