Patents and R&D expenditure effects on equity returns in pharmaceutical industry

As costs of pharmaceutical R&D soar and productivity falls, the role of research pipelines in firm valuations is changing. To date, surprisingly little work has been published on the effects of R&D pipeline performance on equity returns, while controlling for coincident factors, such as legacy patents and presence of blockbuster drugs in production. Using 1996–2013 data for nine largest pharmaceutical companies in the world, this article assesses the role of the above factors on returns to pharmaceutical companies equity. We show significant positive link between changes in the number of blockbusters on patent six months prior and returns in excess of pharmaceutical equity index. The number of patents granted by United States Patent and Trademark Office in a quarter is also a significant factor. On the other hand, we find that increases in R&D expenditure in large-cap pharmaceutical companies are viewed negatively by investors in the short term.     

Economic returns to schooling in urban China, 1988 to 2001

This study provides estimates of the returns to schooling in urban China over an extended period of economic reforms. We find a dramatic increase in the returns to education, from only 4.0 percent per year of schooling in 1988 to 10.2 percent in 2001. Most of the rise in the returns to education occurred after 1992 and reflected an increase in the wage premium for higher education. The rise is observed within groups defined by sex, work experience, region, and ownership, and is robust to the inclusion of different control variables. The timing and pattern of changing schooling returns suggest that they were influenced strongly by institutional reforms in the labor market that increased the demand for skilled labor. Journal of Comparative Economics 33 (4) (2005) 730–752.     

Competition among techniques in the presence of increasing returns to scale

A model of technology diffusion and growth originally proposed by Batten (1987), taking into account the interaction of the supply of and demand for a new product, is modified so as to admit a production technology with increasing returns to scale and the possibility of a competition between two techniques. On the opposite to the case where the production technology of the new technique exhibits decreasing returns, the presence of increasing returns to scale prevent the splitting of the market between two new techniques, and the monopoly position of one technique must obtain. The winning technique may not be the most efficient in terms of its market expansion potential, the outcome of competition depends on initial conditions on production capacity and diffusion.The author wishes to thank Robert Boyer for his helpful advice and remains the sole responsible for all remaining errors and omissions.     

The effect of debt capacity on the long-term stock returns of debt-free firms

This article examines the long-term stock market performance of debt-free firms with high and low levels of debt capacity to see whether they are different. We use Fama and French’s (1993) three-factor and Carhart’s (1997) four-factor models to examine the subsequent 1, 2, 3, 4 and 5-year stock returns of firms that stayed debt free for 3- and 5-year periods. We measure debt capacity as the expected asset liquidation value of a firm, which is proxied by the firm-level tangibility measure defined by Berger, Ofek, and Swary (1996). We find that regardless of the level of debt capacity, zero-debt firms generate positive abnormal returns in the long run after controlling for key risk factors. We also find support for the notion that preserving debt capacity in the form of higher tangibility reinforces the positive abnormal returns over and above the effect of a zero-leverage policy.     

Technical efficiency and returns to scale in Austrian commercial banking: 1987–1991

In a pooled time-series cross-section study covering the period 1987–1991, the technical efficiency of Austrian all-purpose banks is analysed. The sample covers banks of all size classes, among them the largest 18 banks as well as some of the very small banks. The empirical results show that local banks and nationwide operating banks are technically most efficient while regional banks are least efficient. Moreover, it can be shown that the technical efficiency of nationwide operating banks improved substantially in the period analysed relative to that of local and regional banks.I wish to thank an anonymous referee for his helpful comments. Financial support from the Vienna Chamber of Commerce is gratefully acknowledged.     

Testing for the presence of some features of increasing returns to adoption factors in energy system dynamics: An analysis via the learning curve approach

The purpose of this paper is to explain the sources of energy system lock-in. It presents a comparative analysis of the respective contributions of some features of increasing returns to adoption factors, i.e. learning-by-doing, learning-by-searching and returns to scale effects in explaining the technological change dynamics in the energy system. The paper is technically based on a critical analysis of the learning curve approach. Econometric estimation of learning and scale effects inherent to seven energy technologies were performed by the use of several learning curve specifications. These specifications permit to deal with some crucial issues related to the learning curve estimation which are associated with the problem of omitted variable bias, the endogeneity effects and the choice of learning indicators. Results show that dynamic economies from learning effects coupled with static economies from scale effects are responsible for the lock-in phenomena of the energy system. They also show that the magnitude of such effects is correlated with the technology life cycle (maturity). In particular, results point out that, 1) the emerging technologies exhibit low learning rates associated with diseconomies of scale which are argued to be symptomatic of the outset of the deployment of new technologies characterized by diffusion barriers and high level of uncertainty, 2) the evolving technologies present rather high learning rates meaning that they respond quickly to capacity expansion and R&D activities development, 3) conventional mature technologies display low learning rates but increasing returns to scale implying that they are characterized by a limited additional diffusion prospects.     

Volatility transmission between Japan,UK and USA in daily stock returns

In the past, there are a lot of studies which conclude that the holiday, asymmetry and day-of-the-week effects influence stock price volatility. Most of the studies are based on a class of generalized auto-regressive conditional heteroskedasticity (GARCH) models. No one examines these effects simultaneously using stochastic volatility (SV) models. In this paper, using the SV model, we examine whether these effects play an important role in stock price volatilities. Furthermore, we consider spillover effects between Japan, UK and USA, where spillover effects in price level as well as volatility are taken into account. We are grateful to two anonymous referees for suggestions and comments. We also acknowledge Toshiaki Watanabe who gave us a lot of helpful suggestions and comments in the preliminary version of this paper. This research is partially supported from Japan Society for the Promotion of Science (Grant-in-Aid for Scientific Research (C) #18530158, 2006–2009, and Grant-in-Aid for COE Research) and the Zengin Foundation (Grant-in-Aid for Studies on Economics and Finance), which are acknowledged by H. Tanizaki.     

Effect Of Liquidity On Firms' R&D Spending

The effect of firms financial condition on their R&D investment is explored using a relatively long panel data set for five high-technology industries. We find that financial condition, whether measured as cash flow, the stock of liquid assets or the ratio of liquid assets to current liabilities, does affect the R&D spending of small firms. The effect persists after controlling for unobserved permanent firm effects, and the pattern of significance of lagged effects supports the interpretation of causality running from liquidity to R&D. For larger firms, there is no evidence of such an effect. Using these data, we cannot say whether the absence of an effect in larger firms results from better access to capital markets or from higher adjustment costs in R&D.     

Assessing the influence of differentiation strategy and R&D subsidies on R&D cooperation

This paper explores the R&D cooperation determinants of the innovative companies belonging to the Spanish manufacturing sector. Our findings suggest that the variable R&D subsidy is endogenous, significant, and has a strong positive influence on R&D cooperation. This is a clear indication that the achievement of public aid is often conditioned by the obligation for companies to cooperate in R&D. We have also found that the differentiation strategy variable is significant and has a negative influence on R&D cooperation. Companies positioned in a differentiation strategy probably own and use some different knowledge from other companies. Consequently, they will not have much interest in taking advantage of the spillovers generated by other companies. It is therefore logical that they are reluctant to establish cooperation agreements on R&D. Therefore, companies positioned in the differentiation strategy need public policies to support R&D that are not conditioned to the establishment of cooperation agreements.     

On Clustering in the Location of R&D: Statics and Dynamics

Empirical analyses of research and development find strong evidence that these activities tend to cluster geographically. Clusters are thought to emerge from the presence of localized positive externalities. This paper presents a model of this clustering behaviour. We find that phase changes in clustering exist both as the strength of local externalities changes and as the degree of heterogeneity among firms changes. The dynamics of the system are examined as it responds to shocks to the size of the market for R&D output, and the length scale of the spatially dependent externalities. Dynamic responses take place in two distinct stages: a rapid response to the change in market systems which takes place throughout the space, with litlle regard to externality effects; followed by a slow re-agglomeration process as producers change their spatial decisions to lower the costs of the new production level.     

On the correlation between stocks and art market returns

We estimate the correlation between the returns of an S&P 500-based portfolio and Renoir paintings. Unlike previous studies that relied on single-point estimates of the correlation to explore the merits of adding art assets to a portfolio of stocks, we rely on a wild bootstrap algorithm to determine confidence intervals for the correlation estimates. We find that these confidence intervals are so wide (a situation not peculiar to our example) that it seems impossible to make absolute remarks about the merits of adding art-related assets to stocks portfolios. Moreover, our results suggest that previous conclusions regarding the correlation between art and stocks should be taken with some scepticism.     

Institutions and the R&D of GM-crops

This paper analyzes how different institutional structures shape the research and development (R&D) of genetically modified crops (GM-crops). Whether this R&D is conducted within companies, cooperatives or public research organizations (both publicly and privately funded R&D) is expected to influence the type of crops and traits that are developed and therefore the effects on society and ecosystems that potentially could follow from the use of GM-crops. This issue is analyzed empirically by statistical analysis of 1323 notifications for field trials with GM-crops that have been submitted under two EU Directives in seven European countries. The results show that the type of R&D organization influences the traits and crops that are developed. Companies are more likely to submit notifications that concern GM-crops that secure the potential for profit than are other types of R&D organizations, while R&D organizations that are purely publicly funded are more likely to submit notifications that only concern biosafety research than are cooperatives and companies. Consideration of the environment, food safety and food security might justify institutional reforms of R&D of GM-crops. This might include increased public funding combined with changes in intellectual property rights.     

Strategic timing in R&D agreements

We study the endogenous formation of R&D agreements in a R&D/Cournot duopoly model with spillovers where also the timing of R&D investments is endogenous. This allows us to consider the incentives for firms to sign R&D agreements over time. It is shown that, when both R&D spillovers and investment costs are sufficiently low, firms may find difficult to maintain a stable agreement due to the strong incentive to invest noncooperatively as leaders. In this case, the stability of an agreement requires that the joint investment occurs at the initial stage, thus avoiding any delay. When spillovers are sufficiently high, the coordination of R&D efforts becomes a profitable option, although firms may also have an incentive to sequence noncooperatively their investment over time. Finally, when spillovers are asymmetric and knowledge mainly leaks from the leader to the follower, investing as follower may become extremely profitable, making R&D agreements hard to sustain unless firms strategically delay their joint investment in R&D.     

Pitfalls in estimates of the relationship between stock returns and inflation

Empirical tests of the Fisher hypothesis give conflicting results, regardless of whether income growth is accommodated in the estimates. This paper shows theoretically and empirically that standard methods of testing the Fisher hypothesis give biased results and that the bias depends on the specification of the Fisher equation, the process governing inflation, measurement of inflation expectations, and the time aggregation of the data. Alternative tests show that share markets take several years to adjust to innovations in inflation and therefore that the Fisher hypothesis cannot be maintained. Helpful comments and suggestions from Hans Christian Kongsted, Darrel Turkington and seminar participants at the University of Western Australia, and University of Konstanz and, particularly, two referees, are gratefully acknowledged.     

A comparative analysis of the change in R&D efficiency: a case of R&D leaders in the technology industry

This paper measures the cumulative change in research and development (R&D) efficiency of globally leading R&D companies in the technology industry. We use Data Envelopment Analysis /Malmquist index to analyse 49 such companies. The change in R&D efficiency is analysed by decomposing the Malmquist index into ‘catch-up’ and ‘frontier shift’ indices, and by comparing cumulative indices to those at the starting period. Those cumulative indices are obtained at both a firm and an industry level. Results indicate that the overall R&D efficiency of these globally leading R&D companies declined slightly during the period 2007–2013. At a firm level, this study determines in detail how the trend of each firm in R&D activities differs from other companies.     

Long memory in the volatility of China stock returns

In this paper, we empirically examine the volatility process of China's stock market returns using daily and weekly Shanghai and Shenzhen stock indices during January 1990 to August 2008. To investigate the property of the process, we used the FIGARCH (fractionally integrated GARCH) model including GARCH and IGARCH processes as special cases. Since the FIGARCH model allows fractional integration order, it can detect hyperbolically decaying volatility processes which cannot be explained by previous models with integer integration order. Our results show that the Shanghai and Shenzhen stock indices exhibit long-term dependencies. The long memory properties of the Shanghai and Shenzhen stock markets do not seem to be spuriously induced without exception.     

Endogenous protection of R&D investments

Abstract .  We examine firms' incentives to protect their non-cooperative R&D investments from spilling over to competitors. We show that, contrary to findings in most of the literature, the lack of full appropriability can lead to an increase in R&D investments. Consequently, as long as the R&D spillovers are not too strong, firms decide to let their R&D knowledge flow. Since, as we show, welfare is higher when R&D spillovers are present, it follows that public policies that promote the dissemination of technological knowledge could be welfare-enhancing.     

The effectiveness of R&D subsidies

In this paper, the effectiveness of R&D subsidies is analyzed in an oligopolistic model that we apply to the cases of international R&D competition and cooperation. We find that the existence of asymmetric information among firms on whether a rival (or partner) is being subsidized or not may play a key role in explaining whether subsidies are effective or not in increasing R&D investments. In particular, it is shown that if the existence of the subsidy is made public (e.g. because strict information release regulation about R&D subsidies is enforced) and depending on the strategic relationship between the firms’ R&D efforts, an R&D subsidy could even hurt the subsidized firm.