tend to be very rapid in their pace of improvement on patented technology. At the
same time, U.S. companies dominate in terms of being granted U.S. patents with
the highest scientific merit, when merit is measured in terms of CI and NPR. This
means that U.S. companies dominate lists of firms noted for gaining patents that
are widely cited in subsequent patent applications and in academic journal arti-
cles and papers presented at scientific meetings. Interestingly, and despite Narin’s
(1995) suggestion that Japanese companies tend to be most rapid in their citation
of new technology, Hirschey and Richardson (2001) report that there is no clear
difference during the late-1990s between the TCT of top high-tech U.S. and
Japanese companies. Apparently, the speed with which a company is developing
new technology is fairly dependent upon firm-specific factors that do not lend
themselves to broad characterization on a national basis.
The valuation effects of patent quality were analyzed according to firm size class
and growth opportunities for a representative sample of 1350 Japanese firm-year
As described in Table 7.2, this sample of high-tech Japanese com-
panies includes firms that tend to be somewhat smaller than the high-tech U.S.
firms covered in the Tech-Line
database. When size is measured by market
capitalization, the average Japanese company in the database has a market capi-
talization of only $5.8 billion versus the U.S. average of $6.4 billion. Notice,
however, that the Japanese firms included in the Tech-Line
database tend to have
much higher average P/E ratios than their U.S. counterparts. For example, mod-
erate P/E ratios for Japanese companies in the sample range between 37.10 and
61.75, whereas moderate P/E ratios for high-tech U.S. companies ranged between
12.11 and 18.99 during the 1989–95 sample period. Cross-section regression
results evaluated using a pooled time series and cross-section (POOLED) sample
of Japanese companies are shown in Table 7.5.
As suggested by Griliches (1990), among others, Table 7.3 show consistently
positive effects of the number of U.S. patents on the current market
value of U.S. firms. With a patents coefficient estimates of 3.6740–3.7480, the
estimated marginal value per patent is roughly $3.67–3.75 million for U.S. firms.
These finding support the notion that the current stock prices of high-tech U.S.
firms reflect the future earnings capacity of intangible assets such as patents and
that the patent process provides certification of inventive output that has
predictably positive effects on long-term profitability. Conversely, as shown in
Table 7.5, the market values of high-tech Japanese companies show no favorable
For brevity, coefficient estimates for annual dummy variables are suppressed. Full results are
available on request.
In the analysis of Japanese companies, size normalization is accomplished by dividing each size-
related variable (market value and the number of patents) by total assets (or by multiplying by A

Get Tech Stock Valuation now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.