Innovation, market power, and firm valuation

The governmentʹs technology policy is an important guideline and direction for the development of technology industry in Taiwan. Taiwan government proposed a two-phase process of high-technology industrialization development and, established center-satellite factory system which has effectively enhanced cooperation on the dimension of business management, total quality management, technology transference, and financial support. This mechanism effectively upgrades the industry level and makes a significant contribution to Taiwanʹs economical miracle. This study adopts Olhsonʹs (1995) model to explore the internal innovation of the information technology (IT) industry, from which it proceeds to observe the external behavior of the industry in terms of market power, in order to analyze how innovation and market power affect market value under keen competition. Empirical results show a positive correlation between innovation and market value of the IT industry, which indicates the importance of innovation to the development of firms and an explanatory capability outside the book values of firms. Market power indicates an insignificant correlation to market value except in small and medium-sized enterprises (SMEs), which implies the economic contribution of SMEs in Taiwan.