The Value-Relevance of Nonfinancial Information: The Biotechnology Industry

This study examines whether nonfinancial patent information is useful to investors in assessing and valuing biotech firm's long-term financial performance. Using six patent variables measuring both quantity and quality aspects of patents, I find that patent information is associated with biotech firm's subsequent financial performance. In addition, I derive a return model to test whether patent information adds incremental value-relevance over traditional accounting measures to the market valuation in the biotech industry. The result suggests that nonfinancial patent information captures the biotech firms' value not valued by traditional accounting measures.