Abstract
We explore two different potential sources of patent value – the legal right granted by the patent and the technical information disclosure that serves as a signal of firm technological ability and value. We apply an event study methodology to investigate market response to patent application publication and patent grant events, using the enactment of American Inventors Protection Act (AIPA) as a natural experiment. We also evaluate how patent characteristics and firm characteristics are associated with abnormal returns generated by patent events. Our results support previous scholars’ work showing the positive effect of patent grant on firm market value confirming the importance of patents as intangible assets. However, patent application publication events, on average, generated negative abnormal returns suggesting that investors may evaluate the application publication as information being revealed to competitors instead of a signal of firms’ capabilities.
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