Are ivory towers truly ivory? Knowledge spillovers and firm innovation

• Geographic distance from firm headquarters to the nearest university captures knowledge spillover from the university to the firm.
• Firms near a research university have higher growth potential/market valuation and spend more on R&D.
• Firms near a research university innovate more and experience higher stock volatility, possibly “good” volatility.
• Demonstrates impact of knowledge and human capital on firms and capital markets.

Using a sample from 1980 to 2009, we find that firms headquartered near a knowledge center, as defined by 196 leading American research universities experience higher market-to-book ratios and higher stock volatility. The overall evidence is consistent with knowledge spillovers fostering firm innovation and growth in an increasingly knowledge-based economy and bringing good volatility and higher market valuation to the firm. Surprisingly, this effect comes only marginally through firm R&D and further investigation into other possible channels for the documented links is required. Robustness checks include controls for metropolis effects and utility patents filed.