Pre-grant Patent Disclosure and Analyst Forecast Accuracy

Abstract

We examine the relationship between pre-grant patent disclosure and analyst forecast accuracy. We take advantage of the passage of the American Inventor’s Protection Act (1999), which mandates the pre-grant public disclosure of all information in patent application documents within 18 months of the initial filings. We find that, on average, the pre-grant patent disclosure of corporate inventions significantly improves the accuracy of analyst forecasts about the patenting firm and this improvement is greater for firms with higher research and development intensity. Nevertheless, improvements in the accuracy of analysts’ forecasts are smaller when firms issue more original and scientifically broader patents. Also, this effect is weaker for firms in states without legal protection for trade secrets. This paper was accepted by Brian Bushee, accounting. Funding: Ali Mohammadi gratefully acknowledges support from the Danish Finance Institute. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2022.4420 .