RQ Innovative Efficiency and Firm Value

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.

Automated summary

The research quotient (RQ) is a firm-level innovation-efficiency measure with low correlation to existing measures. In various innovation tests common in finance literature, RQ proves to be robust in assessing firm value, even after controlling for previous innovation measures. This suggests that RQ may serve as a relevant complementary measure of a company's innovation.