In the article The Effect of Intellectual Property Rights Protection on Stock Price Informativeness, Kogod Professor Tharindra Ranasinghe and co-authors examine how stronger intellectual-property-rights regimes enhance the amount and quality of information reflected in stock prices, suggesting that better IP protection helps capital markets incorporate firm innovation more reliably.
Key Takeaways:
Firms operating in jurisdictions with stronger IP-rights protection tend to have more informative stock prices, meaning their market valuations more accurately reflect underlying innovation and future earnings potential.
Improved IP protection reduces information asymmetry: investors better understand firms’ intangible-asset value and are less dependent on opaque disclosures.
The findings imply that countries and firms investing in IP-rights infrastructure aren’t just protecting inventions — they’re also strengthening how markets allocate capital to firms with innovation potential.
“Stronger intellectual property rights protection enables markets to more fully reflect firms’ innovation-driven value, not just their tangible assets," says Ranasinghe.