Measuring Patent Quality Based on ISR Citations: Development of Indices and Application to Chinese Firm-Level Data

Abstract

Considering China’s policy-driven patent expansion, we validate domestic citations in comparison to foreign ones, which are exogenous to China’s policy, as economic indicators. We derive internationally comparable citation data from international search reports. Whereas foreign citations show that Chinese PCT applications reach only a third of the non-Chinese quality benchmark, the extension towards domestic and self citations suggests an increasing quality level that is closer to the benchmark. We investigate these differences based on firm-level regressions and find that only foreign citations, but not domestic and self citations, have a significant and positive relation to R&D stocks. As Chinese citations appear to suffer from an upward bias, we confirm that indicators fail as reliable measures if they become the target of policy. Taking Germany as a counterexample, we show that domestic and self citations may be used as quality measures if policy distortion is not a concern.