Innovation predicts higher profits and stock returns


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A large-scale study of the link between innovation and financial performance in Australian companies has shown more innovative companies to post higher future profits and stock returns.

The findings highlight the significant financial benefits of innovation for companies, which in turn create employment and .

Dr. Anna Bedford, dau. Le Ma, Dr. Study conducted by Nelson Ma and Christina Vojvoda from University of Technology Sydney Registration from 1296 ASX-listed companies between 1997 and 2018.

They matched patent data with financial and market information and found the most innovative companies to experience 1.95% higher annual growth in profitability than non-innovative firms.

Dr. Bedford says, “Despite calls for more innovation to promote economic growth in Australia, reducing dependence on commodities and tourism, there was no evidence as to whether innovation generates greater financial returns . “

“Evidence of a strong link between patent filing and future earnings should encourage businesses to invest in innovation. The findings also suggest that the Australian government has developed a stronger to develop more incentives to support corporate innovation.” Has provided logic, ”she says.

Using a new source of data from the Australian Patent Office, researchers found that nearly half of Australian companies in the study had no patents listed, while 618 were in the “low” category, 48 were in the “middle” and 31 ” high range.

Researchers have now developed a previously listed Australian-listed patent database, publicly available on the UTS website, to facilitate future studies on Australia’s innovation and expand understanding of innovation by Australian firms.

The study found that compared to US firms, Australian companies were less innovative, made smaller investments in R&D, and had fewer patents.

In 2019, IP Australia received a total of 29,758 standard patent applications, while 621,453 patent applications were received by the US Patent and Trademark Office.

Australia is currently ranked 23rd in the world on the Global Innovation Index, and a disappointing 59th for “Innovation Efficiency” based on how well research has translated into business outcomes.

Australia’s current R&D tax incentive scheme has been considered ineffective, with the government’s call to increase direct funding for innovation through government grant programs.

Researchers also saw how Innovation activities are perceived and valued by investors, and whether investors are able to benefit from innovation in the future. Investor behavior is important because it can influence the strategy of innovation.

“US research suggested that investors are not good at pricing future gains from innovation, our study showed that Australian investors are better at understanding innovation and competition gains at share prices,” Dr. Says Li Ma.

She says, “This is possible due to the relatively limited patent filing activities taking place in Australia and the two-tier patenting system distinguishing between ground-breaking and incremental innovations.”

The study’s findings highlighted the need for companies to communicate their innovation pipeline with investors, and for a clear and accessible patent database.

“Our research demonstrates the importance of a patent system that can facilitate corporate understanding of investors However, Australia’s two-tier patenting system is currently being phased out, which could become an entry barrier, ”says Dr Ma.

New research examines the effects on firm-performance-, industry- and country-level innovation

more information:
Anna Bedford et al. Future profitability and stock returns of innovative companies in Australia, Pacific-Basin Finance Journal (2021). DOI: 10.1016 / j.pacfin.2021.101508

Quotes: Innovation predicts higher profits and stock returns (2021, 17 February) Retrieved 17 February 2021 from

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