Corporate Patenting, Customer Capital, and Financial Market Outcomes

Abstract

We study how patenting enhances customer capital and creates financial value. We find that firms with more and higher quality patents develop more customer capital as measured by better customer perceptions of product innovativeness and quality. To establish causality, we exploit the exogenous variation in the random assignment of patent examiners to review applications and use the average examiner leniency as an instrument for patent grants. Our mediation analysis documents a positive impact of patenting on firm performance through enhanced customer capital. Collectively, our findings establish a clear link between patenting and customer capital, which in turn creates financial value.