The association between technological conditions and the market value of equity

Matolcsy, Zoltan P. and Wyatt, Anne (2008) The association between technological conditions and the market value of equity. The Accounting Review, 83 2: 479-518. doi:10.2308/accr.2008.83.2.479

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Author Matolcsy, Zoltan P.
Wyatt, Anne
Title The association between technological conditions and the market value of equity
Journal name The Accounting Review   Check publisher's open access policy
ISSN 0001-4826
1558-7967
Publication date 2008
Sub-type Article (original research)
DOI 10.2308/accr.2008.83.2.479
Volume 83
Issue 2
Start page 479
End page 518
Total pages 40
Place of publication Sarasota, U.S.
Publisher American Accounting Association
Language eng
Subject 15 Commerce, Management, Tourism and Services
1503 Business and Management
Abstract 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 1990–2000 including firms actively producing new technologies and firms that adopt technologies for their processes and products. Our primary and additional tests suggest that the interactions capture value-relevant information not reflected in commonly used variables including industry, research and development, sales, general, and administration expenses, risk, and growth. We also triangulate our results by providing evidence that aggregate technological innovation conditions predict future earnings and are, hence, instrumental in the earnings-generation process. This paper extends the valuation literature by (1) developing a generalizable framework that explains how technological innovation conditions link to future earnings and therefore map into the market value of equity; (2) developing aggregate measures of technological innovation conditions that are relevant for estimating future earnings and value for all firms; and (3) providing detailed empirical evidence on the relation between these aggregate measures and the market value of equity and earnings for all firms not just those that patent.
Keyword Technology
Technological innovation
Firm
Investment
Growth
Market
Value
Equity
Q-Index Code C1
Q-Index Status Provisional Code

Document type: Journal Article
Sub-type: Article (original research)
Collections: Excellence in Research Australia (ERA) - Collection
UQ Business School Publications
 
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Citation counts: TR Web of Science Citation Count  Cited 18 times in Thomson Reuters Web of Science Article | Citations
Scopus Citation Count Cited 23 times in Scopus Article | Citations
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Created: Thu, 07 Jan 2010, 09:32:36 EST by Macushla Boyle on behalf of Faculty of Business, Economics & Law