Valuation of high tech firms: Role played by intangibles at IPO

Abstract

We aim to examine the impact of intangibles namely, R&D investments, patent quality and patent count on firma??s IPO value and 1 year holding period returns. We use forward citation index, backward citation index and technology cycle time to proxy for the quality of patents. We have four different constructs of patent counts namely, patents granted, patents pending, patents licensed and total number of patents. In addition, we examine the impact of patent counts and R&D investments on the different sub category of high tech firms i.e. Biotechnology, Computer Programming and Software, Communications and High Tech Manufacturing.We find that R&D intensity is useful in explaining 1 year holding period return. In addition, we find that the impact of patents pending and total number of patents differ across industries and are value relevant in explaining IPO value. Our results also reveal a positive and significant relationship between backward citation index and IPO value.