Licensing Intellectual Property: analysts' perceptions and share price effectsSuzanna Hawkes’ paper appears to be the first systematic study analysing the stock market’s understanding of intellectual property. This is surprising, given the prevalent rhetoric advertising intellectual capital as the driver of a new knowledge-based economy. Equally surprising are the results. Although share prices respond to licence agreements with significant abnormal returns, the market does not appear to know why. If you ever wondered how intellectual property creates market value, this paper is required reading. As Hawkes shows, the information content of licence agreements is highly dubious, and analysts and stockbrokers appear to thoroughly misread the terms. Hawkes has employed a robust methodology tested in earlier stock market event studies of alliance announcements. Within a window of three days, market movements of firms announcing intellectual property licences were measured against an industry average, on the theoretical assumption that the share price will incorporate the expectation of future profits, and thus the strategic value of the licence. Data were segregated according to industry sector, the type of intellectual property being licensed, whether the company was the licensee or licensor, the territory of the licence, the exclusivity of the licence and the financial value of the transaction. In line with expectations, licences in high tech industries resulted in higher abnormal share price returns than in low tech industries (5.51% versus 1.44%); patents created more value than other IP (3.03% for patents versus 1.75% for trade marks, the lowest abnormal return); world licences were more valuable than single territories. Reassuring so far. Interestingly, cross-licences (perhaps in expectation of a monopolistic market grip) created a significant abnormal return of 3.45% as compared to 1.19% for the sale (assignment) of IP. These results were complemented with a survey of perceived value of intellectual property transactions by stockbrokers and analysts. Perceptions of patent licences and licence territories were close to actual market responses, indicating a good understanding of these factors. The impact of copyright, trade mark and know-how licences were all overestimated; perhaps reflected in the erroneous belief of almost half of respondents that ideas were protected by copyright. Exclusivity and non-exclusivity were highly under-estimated and over-estimated respectively, indicating a lack of understanding of licensing terminology. Hawkes concludes with an argument for a market standard in communicating licence agreements. More transparent information would be reflected in a more accurate valuation of companies, and thus increase the ability of intellectual capital intensive firms to attract finance. Martin Kretschmer |
 
|
|
|
About the University / Courses / Academic Centres / Research / Academic Support / Facilities and Resources / Business Services Community Engagement / News and Events / Future Students / International Students / Student Portal / Staff / Alumni / Careers Advisers and Teachers |
||
