Valuation of R& D and Patent: An Economic Value Added Perspective

R&D and patent are viewed as two major proxies of intellectual capital in the literature of industrial economics. Since 80% of a company´s value is intangible, conventional accounting measures are insufficient for determining the effect of intellectual capital. Whereas Economic Value Added (EVA) can provide a framework for valuation of intellectual capital, this study applied EVA to evaluate the effect of R&D and patent. Main objective of his study is the valuation of R&D and patent, and clarifies the relative importance of them. Additionally, this study determined whether EVA reflects economic reality of R&D and patent more accurately than conventional measures do. The theoretical basis for this study is a knowledge production function explaining the effects of traditional production factors (including physical capital and labor) and intellectual capital factors (including R&D, international granted patents and national granted patents) on a firm´s sales and EVA. Time-series cross-section panel data from 219 Taiwanese electronic manufacturers between 1990-2003 were employed for the fixed effect analysis in the model. Major empirical results show obvious differences among the effects of R&D and patent, and EVA method is proved to be an appropriate proxy of economy reality to capture the value of R&D and patent