Financial success in biotechnology: Company age versus company science

The purpose of this research effort is to use the tenets of institutional theory to explore the relative stock market success of biotechnology companies. Previous research (Deng, Z., Lev, B., Narin, F., 1999. Science and technology as predictors of stock performance. Financial Analysts Journal 55(3), 20-32.) has highlighted the relationship between the quality of companies' technology, as measured using quantitative patent indicators, and their stock market valuation. Institutional theory (DiMaggio, P.J., Powell, W.W., 1983. The iron cage revisited: institutional isomorphism and collective rationality in organizational fields. American Sociological Review 48, 147-160.) might suggest that there are many institutional outcomes that are decoupled from the actual activities of the organization. From this view, much of a firm's effort might involve signalling components, including the age of the company and other similar activities. Our results are that older companies have significantly higher stock market valuations, and that those companies had fewer PhD's as their Chief Executive Officers (CEOs). These findings suggest that the stock market often looks favourably upon older established biotechnology companies that are run by professional managers rather than pioneering scientists.