Innovation, Market Share, and Firm Value- Patents in Personal Computer Industry

Innovation effects on firm value have not been effectively discussed because previous studies ignore the market structure and tax shields from research and development (R&D) (e.g., Hirschey and Weygandt (1985), Shevlin (1991)). Market structures of personal computer (PC) firms are explored in this paper to the degree to which innovation increases firm value depending on market structure characteristics. Investigating whether firm value is explained by financial statement variable (book value, abnormal return, and tax shields), innovative patent proxies (number of grated patents, inventors, total citations, self-citation, other-citations) and the interaction between market share and patent proxies is the focus of this paper. R&D tax shields and patent proxies are positively related to market value according to the results of the valuation model. Our investigation additionally shows that sale and patent concentration ratios of the ten largest firms account for more than 67% and 70%, respectively. This implies that dominant firms are more highly involved in innovative activities to maintain market power. The marginal benefit of innovation, according to our findings, becomes greater for firms with stronger market share, which supports the complementary effect of market shares and innovations on firm value. Firms with technological improvement are more valuable through stronger market power.