As stated earlier, the goal of this study was to shed light on the relationship between firm specific capabilities and the creation of wealth. The results provide strong support for the underlying premise that investment in the development of critical skills and capabilities is an important part of the wealth creation process. Four our of our five hypotheses received support at the 0.05 level or better and even with our control variables having little explanatory power, we were able to explain over a third of the variation in the MVA created by the firms in our sample.

There has been much theoretical/anecdotal discussion of the link between a firm's location and its performance. Our results provide empirical support for the assumption that firms which are located close to other firms in the same industry will enjoy benefits from their proximity. While our results fail to provide any insight as to which of the specific mechanisms outline by Marshall are out work it is clear that firms located in a cluster create significantly more wealth than those located outside of a cluster.

To begin with, within each of the eight biotechnology clusters, there exist not only biotechnology firms but also major non-profit research institutions. In many ways these institutions resemble the specialized the intermediate goods industries which Krugman (1991) addresses. The universities and non-profit research institutions provide basic scientific research upon which biotechnology firms build, experienced research and technical personnel, and specialized technical expertise unavailable elsewhere. In addition, these organizations attract skilled personnel to the geographic area which helps create and sustain a superior labor pool. Trying to discern the separate impact of each of these on our results is difficult, but it is very clear that the market places value on a firm being within a cluster of similar firms. These results lend credence to the idea that choice of geographic location is an important strategic decision which should be given careful consideration by entrepreneurs.

Perhaps even more significant is the magnitude of the difference geographic location makes in a firm's ability to create wealth. Based on our results a firm which operates in silicon valley would create more than $27 million in MVA more than a firm isolated geographically all other things being held equal. Given that the average MVA in our sample is $65.6 million, this is a very significant increase in a firm's ability to create wealth. The strength of our results lend credence to the idea that choice of geographic location is an important strategic decision which should be given careful consideration by entrepreneurs.

The results for our citation measure indicates the development of superior capabilities or talents critical to the firm's endeavor dramatically improve a firm's ability to create shareholder wealth. A one standard deviation improvement (134 citations) in the level of citations increase the value of the firm's MVA by over $13.8 million. Strongly indicating that in the biotechnology industry superior scientific capabilities of the firm's research team creates significant shareholder wealth. Thus as a entrepreneur this means that hiring quality personnel based on accepted measures, such as citations in the scientific community, will improve the firm's ability to create value.

The number of patents held by these firms had a negligible impact on the ability of the firms in our sample to create value. One possible explanation for the less than robust results for our patent measure is that patent counts are an ambiguous measure subject to firm specific variations in the propensity of firms to patent given the resource expenditure required by the patent process(Mansfield, 1977; Pakes, 1985). Secondly, simple patent counts may fail to capture the value of a firm's patent library due to the large variation which exists in the value of individual patents. Future research needs to examine the potential ways of controlling for this variation by weighting patents based on their citations or some other appropriate reflection of the patents value. In sum, there is probably significantly more 'noise' in the patent variable than in our other measures.

The rate of new product development is clearly critical to the creation of shareholder wealth in the biotechnology industry. A one standard deviation increase in the rate of new product development (0.8 new products/yr.) would lead to an increase of over $ 9 million in MVA. Clearly, the rate of new product development is critical to wealth creation as argued by Stalk & Hout (1990).

Finally, our results for relative R&D intensity indicate that a strategy of narrowly focusing on R&D during the development stage leads to significant increases in shareholder wealth. Simply shifting one percentage point of spending from other expenditures to R&D spending increases the wealth created by the company by over $540,000. This results is in line with previous research on the effect of R&D spending on market value (Pakes, 1985; Jaffe, 1986).

Our results provide some evidence to support the capabilities position in the current debate between the industry and resources/capabilities schools within the field of entrepreneurship. Except for patents all of our measures of firm specific scientific capabilities were significantly positively related to value creation within a firm. In addition, the magnitude of the coefficients indicate significant value can be created by developing firm specific capabilities. A firm which located in the Silicon Valley and increased by one standard deviation the number of citations, rate of new product development and intensity of its R&D investment (134 citations, 0.8 products per year and 23% more spending on R&D) could increase the amount of MVA created by over $62.7 million. Considering the size and the average amount of wealth created by these firms this provides very strong evidence that the development of firm specific capabilities are an important aspect of the wealth creation process.

While our results provide strong statistical support for our conclusion, we must also acknowledge that our focus on biotechnology raises questions about the generalizability of our study beyond this industry. Biotechnology has several unique characteristics, including a long product development and approval cycle, heavy reliance upon often arcane basic scientific research and a very expensive product development process. However, given these unique characteristics, we still believe that our results are generalizable beyond the biotechnology industry. Basic science appears to be playing a more significant role in the success and failure of individual firms (Dasgupta & David, 1994). This trend increases the importance of scientific capabilities in all types of high technology firms.

While we have found strong empirical support for our model it should also be noted that there is still a significant amount of variation in the value created by a firm which remains unexplained. Obviously, there remains other variables of potential interest which demand further study, including the effects of CEO and management team background, personal characteristics and remuneration and numerous other areas. Overall, the wealth creation process is ripe for further research and is a critical issues for entrepreneurial firms.

Finally, important implications for entrepreneurs follow from our results. First, location, location location. Location is clearly an important and often overlooked strategic decision. Second, hire people whose talents have been recognized by others in their field. Clearly, indicators such as citation provide a good indicator of the individual's capabilities. Third, during the development stage rapidly developing new products and focusing your resources on R&D are strategies which create shareholder wealth.



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