Intrafirm inventor network integration and cross-sectional stock returns

Abstract

This paper examines how intrafirm inventor network integration (IINI) influences future stock returns. We define IINI as the degree to which inventors within a firm are interconnected through collaborative ties. Firms with higher IINI can foster more effective knowledge sharing and produce more original innovations, enhancing long-term firm value. Extracting the inventor collaboration information from the US patent data, we find that firms with higher IINI achieve higher returns even after controlling for traditional asset pricing factors or existing organizational capital factors. IINI enhances innovation, particularly by improving innovative originality, and increases exposure to key talent risk, which partly accounts for its return predictability. However, IINI also contains unique information that drives long-term stock performance beyond key talent risk. We find that IINI-based return predictability persists up to five years, consistent with the market’s underappreciation of intangible assets due to limited investor attention and complexity. Our findings highlight the critical role of inventor networks in fostering organizational capital and innovation, underscoring their importance in asset pricing and firm valuation.