In your thesis, you have developed a new measure of innovation that is text-based. Tell us about it!<\/strong><\/em><\/p>\n\n – The measure is based on text data. By analyzing the text of the annual reports published by companies each year, we can measure the extent to which companies discuss innovation-related activities. With this measure, we assume that the more companies engage in innovation, the more the annual report will contain discussions on innovative activities.<\/p>\n\n What types of innovations can be measured with text analysis?<\/strong><\/em><\/p>\n\n – Text-based innovation is a broader measure of innovative activity within firms. It captures patents and R&D expenditure, as companies usually discuss these in their annual reports. In addition, it can also capture innovations that are not patented or recorded as R&D expenditure.<\/p>\n\n – For example, an improvement in production processes that increases efficiency, or a reorganization of the company that enables better use of resources. In addition, it can capture improvements in the quality of management, which can be considered an important innovation.<\/p>\n\n How is text analysis used as a method?<\/strong><\/em><\/p>\n\n – The text-based measure is based on an unsupervised machine learning method called the topics model. The underlying assumption in such models is that each document is generated from a common set of topics or clusters of words.<\/p>\n\n – Using the Latent Dirichlet Allocation (LDA) algorithm<\/a> I estimate a model with 25 topics in the annual reports of Swedish listed companies. Of the estimated topics, the one most similar to those in a standard innovation textbook is chosen. The loading of this topic in each document is then taken as the text-based innovation measure for the given business year.<\/p>\n\n Why is it important to have multiple measures of innovation?<\/strong><\/em><\/p>\n\n – Each innovation metric has its pros and cons. For example, R&D expenditure effectively captures firms’ investments and efforts to produce innovation. However, these investments may not produce the expected results in terms of innovations. Conversely, patents are a good indicator of innovation output, but many forms of innovation within firms are not patentable. The text-based innovation measure I have developed can provide a broader picture of innovation activities within firms and capture innovations that are not recorded in traditional accounting-based measures.<\/p>\n\n What do the practical results of your thesis show?<\/strong><\/em><\/p>\n\n – First, I show that the text-based measure I developed is a qualitative indication of innovation. Second, it is strongly associated with the number of patents and, to a lesser extent, with R&D intensity. Finally, it is very informative when it comes to predicting the future operating performance of companies. The latter result holds for both patent producing and non-patenting firms.<\/p>\n\n What message do you have for companies that are not involved in patent production?<\/strong><\/em><\/p>\n\n – They should not think that they cannot be innovative. There is room for various improvements in organizational structure, management practices and operational processes.<\/p>\n\n – As my research shows, managers who introduce such innovations will be rewarded with higher business performance.<\/p>\n\n