Essays on information technology and intangible capital

Abstract

This thesis consists of three essays related to information technology and intangible capital. The first essay, "Valuing IT-Related Intangible Capital," examines the value of intangible assets in the firm. Using a panel of 130 firms from 2003-2006, we find that intangible assets are correlated with significantly higher market values beyond their cost-based measures. Moreover, we estimate that there is a 30-55% premium in market value for the firms with the highest organizational IT capabilities as compared to those with the lowest organizational IT capabilities. The second essay, "Has Information Technology Leveled the Competitive Playing Field?" analyzes the relationship between IT and ordinary (non-IT) capital and the competitive dynamics within U.S. industries. Using a panel of industry data from 1998-2005, when an industry becomes more IT intensive, there is more entry and expansion of firms (including entry of new small firms and expansion of large firms from the same and other industries). Yet there is also more turnover of small firms in the industry as well as concentration of the industry into large firms. In contrast, as an industry becomes more ordinary capital-intensive, there is less entry of small firms and fewer establishment openings by large firms; a lower rate of turnover by small firms; and fragmentation of the industry into small firms. In the third essay, "The Value and Durability of Patents in High-Tech Firms" (co-authored with Erik Brynjolfsson and Lorin Hitt), we use data on publicly traded high-tech companies from 1984-2002 to examine the relationship between the firms' market value and their patent-based intangible assets. We find that high-tech firms with patents that are cited by a wide variety of other patents in different patent classes are worth significantly more than firms with patents that are cited by a narrow range of patents. Patent generality is especially valuable in periods of change, when firms are no longer at the leading edge of innovation in a particular year. In these periods, we find that the value of diverse patents across technology categories is positive but not significant and that generality is comparatively more valuable than diversity.