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Measuring the Economic Value of an Innovation When Some Investors Are Inattentive
Published online by Cambridge University Press: 21 July 2025
Abstract
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We analyze the effects of limited investor attention on the stock market reaction to innovation announcements and develop a new measure of patents’ economic value. We hypothesize that, when some investors pay delayed attention to innovation announcements, there will be a post-announcement drift in addition to the announcement effect, with the former decreasing and the latter increasing in investor attention. Using media coverage and abnormal Google search volume as investor attention proxies, we find consistent evidence. Our new attention-weighted measure of patents’ economic value has greater predictive power for future firm performance than measures based on the announcement effect alone.
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This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.- Copyright
- © The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington
Footnotes
For helpful comments and discussions, we thank Anup Agrawal, Onur Bayar, Karan Bhanot, James R. Brown, Natasha Burns, Leland Bybee, Michael Ewens, Carl Chen, Kristine Hankins, Po-Hsuan Hsu, Vladimir I. Ivanov, Ravi Jagannathan, Palani-Rajan Kadapakkam, Gaurav Kankanhalli, Paul Koch, Lei Kong, Karthik Krishnan, Kelvin J.K. Tan, Xuan Tian, Tony Via, John Wald, Xinyan Yan, Qianqian Yu, participants in the 2019 Summer Finance Workshop at the University of Dayton, the 2020 American Finance Association annual meeting doctoral student session, the 2020 Midwest Finance Association annual meeting, the 2020 Financial Management Association annual meeting, the 2020 Taiwan Symposium on Innovation Economics and Entrepreneurship, the 2020 Boca Finance Conference, the 2022 Eastern Finance Association annual meeting, and the 2022 Financial Intermediation Research Society Conference, and seminar participants at Brock University, the University of Kansas, the University of Texas at San Antonio, Southern Illinois University Carbondale, and Boston College. Special thanks to an anonymous referee and to Kai Li (the editor) for several helpful comments that greatly improved the article. We thank Jin Cai, Baichuan Guo, Jiarui Guo, Matthew Katz, Destan Kirimhan, and Yafei Zhang for their excellent research assistance. Any remaining errors are the authors’ responsibility.
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