We construct a new text-based measure of innovation using the content of analyst reports of S&P 500 firms. Our text-based measure captures innovation that is not measured by existing proxies, which is the case when innovation is not financed by R&D and is not patented. The text-based innovation measure is useful even within the set of patenting firms because it strongly correlates with valuable patents, which likely capture true innovation. Indeed, the text-based innovation measure is robustly related to greater firm performance and growth opportunities for up to four years, and these value implications hold just as strongly for non-patenting firms. Digging deeper, highly-innovative firms according to our text-based measure become innovative by producing innovative systems (e.g., Walmart’s cross-geography logistics). Consistent with this interpretation, we find that highly-innovative firms are more acquisitive, using acquisitions of relatively smaller firms to augment their innovative systems. Taken together, these findings provide deeper insight into the value of innovation more broadly, not just innovation that can be patented.

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