Anne Marie Knott, the Robert and Barbara Frick Professor of Business at Olin, has won the 2021 Olin Award for “RQ Innovative Efficiency and Firm Value,” forthcoming in the Journal of Financial and Quantitative Analysis.
The Olin Award, which includes business school recognition and a $10,000 prize, is intended to promote scholarly research that has timely, practical applications for complex, real-world management problems.
Dean Mark Taylor surprised Knott with the good news on Tuesday during a Zoom chat, which she initially believed was to discuss her annual performance review.
“I didn’t know it was a party!” Knott said when she joined the chat, which was populated by a small group including Richard J. Mahoney, former CEO of Monsanto and a Distinguished Executive-in-Residence at Olin.
Taylor told her the Olin Award judges had chosen her paper as the winner, and he led a round of applause.
“Thank you! I’m so excited,” Knott said.
“One of the things our judges liked was that it was written in our native tongue,” said Mahoney, who initiated the Olin Award 14 years ago. “Not that it was simple, but it was well written.”
Knott’s winning entry—one of 14 papers submitted—explores RQ’s ability to serve as a robust measure of a firm’s innovation for the finance audience. RQ is short for research quotient, which is measured as the output elasticity of Research & Development. First developed by Knott in 2008, RQ can be estimated for any firm reporting R&D.
Knott’s paper is “making an academic impact as well as a business impact,” Taylor noted.
Knott said people already had downloaded it about 5,000 times. “It’s my most-downloaded paper,” she said.
R&D is the primary source of growth for 40% of companies, Knott explained in her submission letter, “yet companies are flying blind with respect to their R&D, because they lack good metrics.”
The front-end implication of flying blind is that companies don’t know how much to invest in R&D, she said.
“Only 4% of companies invest within plus 10% of optimal levels. The remaining 96% of companies are leaving an average of $182 million of foregone profits on the table each year.”
The back-end implication of flying blind is that companies can’t tell if they’re effectively managing their R&D.
“As a consequence, companies’ R&D productivity has declined 65% over the past four decades,” she said. “This not only hurts companies and their stakeholders; it hurts the entire economy, because R&D is the primary driver of economic growth.”
Knott said she and her co-authors wondered if academics suffered similar problems with respect to innovation metrics. So they tested the ability of academic innovation metrics to predict firm value.
“While all metrics performed well in some tests, only RQ consistently predicted current and future firm value,” she said.
Knott will present her paper during a virtual Olin Award event in the spring. A date will be announced soon.