R^|^amp;D Efficiency and the Market Value of Japanese Pharmaceutical Firms

Abstract

This paper investigates the extent technological assets contribute to the value of the firm in the Japanese pharmaceutical industry following Cockburn-Griliches's model. Technological assets consist of the level of R&D expenditure and R&D performance. Although previous studies evaluated R&D performance by the number of patents, we evaluate it both by the number of patents and the number of new drugs. Since R&D strategies are not indentical among firms, we allow the weights between patents and drugs to be variable across firms and determine them by DEA (Data Envelopment Analysis). We then estimate the relationship between the value of the firm and the R&D performance with a sample of nine Japanese pharmaceutical firms during 1981-1991. The result indicates that the firms with more efficient R&D performance tend to be evaluated more highly in the stock market.