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Financ Mark Portf Manag (2008) 22: 323356 DOI 10.1007/s11408-008-0089-3
Patents and the performance of technology rms: Evidence from initial public offerings in Germany
Wolfgang Bessler Claudia Bittelmeyer
Published online: 19 November 2008 Swiss Society for Financial Market Research 2008
Abstract The objective of this study is to analyze the relationship between innovation and performance for German rms that went public at the Neuer Markt during the period from 1997 to 2002. In the empirical analysis we investigate in particular whether initial public offerings (IPOs) with more or higher quality patents outperformed IPOs with lower quality or no patented technology. For this we measure the impact of patents on underpricing and long-run performance and explain the magnitude of these valuation effects with the FamaFrench value and growth factors, with patent-specic variables such as the number of IPC-classes, family size, the number of backward and forward citations, as well as with industry variables. The empirical evidence suggests that patents are a reliable indicator for the success and the short-and long-run performance of start-up technology rms that went public and that the valuation effects are more pronounced for higher quality patents.
Keywords Innovation Patents Initial public offerings Long-run performance
JEL Classication 031 M13
1 Introduction
During the last decade the world has been changing from an industrial to a knowledge-based economy. In this process the importance of intellectual property and especially of patents for creating shareholder value has continuously and signicantly increased. Despite the obvious relationship between innovation and growth, it
W. Bessler ( ) C. Bittelmeyer
Center for Finance and Banking, Justus-Liebig-University, Licher Strasse 74, 35394 Giessen, Germanye-mail: mailto:[email protected]
Web End [email protected]
324 W. Bessler, C. Bittelmeyer
is still challenging for innovative rms to utilize their intellectual capital for nancing growth opportunities because nancial institutions as well as other capital market participants such as venture capitalists and mutual funds have been fairly hesitant to provide nancing due to the perceived risks involved in such investments. However, nancing innovation in its various stages is essential for the long-term success of many rms and especially for start-up companies. In the long run, rms will only be in a position to succeed against the erce competition in the global economy when they can rapidly adjust to an ever changing...