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Does Innovation Pay off?

Dahlqvist, Andreas LU (2025) NEKN02 20251
Department of Economics
Abstract
This thesis investigates whether firm-level innovation predicts both stock returns and future profitability among Swedish listed firms, an area that remains underexplored and inconclusive despite its growing importance. Using patent-based measures of innovation, I analyze the impact through portfolio analysis and Fama–MacBeth regressions. The results show that innovation is positively associated with subsequent stock returns, and this return premium persists even after controlling for standard risk factors, supporting a mispricing-based explanation. Innovation is also linked to improvements in future profitability, although these gains are not sustained over time. A key finding is the divergence between quality-focused and... (More)
This thesis investigates whether firm-level innovation predicts both stock returns and future profitability among Swedish listed firms, an area that remains underexplored and inconclusive despite its growing importance. Using patent-based measures of innovation, I analyze the impact through portfolio analysis and Fama–MacBeth regressions. The results show that innovation is positively associated with subsequent stock returns, and this return premium persists even after controlling for standard risk factors, supporting a mispricing-based explanation. Innovation is also linked to improvements in future profitability, although these gains are not sustained over time. A key finding is the divergence between quality-focused and efficiency-focused measures, suggesting that innovation quality, rather than efficiency, drives both market and operational outcomes. Overall, these findings show that markets systematically reward innovation quality but not efficiency, highlighting that value-creating innovation can drive both superior returns and profitability. This conclusion not only adds Swedish evidence to the asset-pricing debate but also offers investors a clearer signal for identifying innovative firms and provides policymakers with guidance on fostering innovation environments that emphasize quality over volume. (Less)
Please use this url to cite or link to this publication:
author
Dahlqvist, Andreas LU
supervisor
organization
alternative title
Evidence from Swedish Listed Firms on Stock Returns and Profitability
course
NEKN02 20251
year
type
H1 - Master's Degree (One Year)
subject
keywords
Innovation, Innovative Originality, Patents, Stock Return, Profitability, ROA
language
English
id
9212386
date added to LUP
2025-11-03 08:41:49
date last changed
2025-11-03 08:41:49
@misc{9212386,
  abstract     = {{This thesis investigates whether firm-level innovation predicts both stock returns and future profitability among Swedish listed firms, an area that remains underexplored and inconclusive despite its growing importance. Using patent-based measures of innovation, I analyze the impact through portfolio analysis and Fama–MacBeth regressions. The results show that innovation is positively associated with subsequent stock returns, and this return premium persists even after controlling for standard risk factors, supporting a mispricing-based explanation. Innovation is also linked to improvements in future profitability, although these gains are not sustained over time. A key finding is the divergence between quality-focused and efficiency-focused measures, suggesting that innovation quality, rather than efficiency, drives both market and operational outcomes. Overall, these findings show that markets systematically reward innovation quality but not efficiency, highlighting that value-creating innovation can drive both superior returns and profitability. This conclusion not only adds Swedish evidence to the asset-pricing debate but also offers investors a clearer signal for identifying innovative firms and provides policymakers with guidance on fostering innovation environments that emphasize quality over volume.}},
  author       = {{Dahlqvist, Andreas}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Does Innovation Pay off?}},
  year         = {{2025}},
}