Citation-weighted Patents Research Articles

Ownership Heterogeneity and Corporate Innovation Output: A Study on Family Blockholders and Activist Hedge Funds

This study examines the interplay between two influential yet opposing shareholder types—family blockholders and hedge funds—in relation to corporate innovation output. Using panel data on U.S. publicly traded firms listed in the S&P 1500, we find that family blockholders have a negative effect on radical innovation output in the form of citation-weighted patents and that this negative effect is intensified in the presence of activist hedge funds. Our study advances insight into the implications of ownership heterogeneity for innovation output choices in family-influenced firms.

Productivity, Innovation Spillovers, and Mergers: Evidence from a Panel of U.S. Firms

Abstract We investigate the impact of mergers and product innovation on labour productivity through a unique panel data set of roughly 2000 publicly traded U.S. manufacturing firms from 1980 to 2003. OLS estimates reveal that mergers interacted with citation-weighted patents are significantly correlated with increases in labour productivity. OLS and IV estimates of citation-weighted patent stocks with respect to firm-specific labour productivity are positive and consistently significant. Further, mergers are significantly correlated with a rise in citation-weighted patent stocks and research and development (R&D) spending. In tandem, our findings suggest that larger firms resulting from mergers spend more on innovation, which results in higher quality patents, and increased labour productivity.

Rising markups, common ownership, and technological capacities

This paper analyses the impact of common ownership on markups and innovation and adds to the discussion of the recently observed patterns of a long term rise in market power. Using a panel of European manufacturing firms from 2005 to 2016, we structurally infer markups and construct a measure of common ownership. We use a propensity score reweighting estimator to eliminate biases due to observational characteristics and find an increase of firm markups ranging up to 3.3% on average in industries with high technological spillovers after the first exposure to common ownership. For companies directly held by common institutional investors, we also measure a positive effect on citation-weighted patents of up to 9.6% in high-spillover industries on average. Both findings are consistent with recent theoretical findings in López and Vives (2019).

How does CEO technical expertise influence licensing-out at technology ventures?

One of the ways in which technology ventures create economic value through open innovation in research and development (R&D) is by licensing out patented inventions to other organizations. Scholars have shown that firms differ in the extent to which they engage in licensing-out, and create value from it. This study views Chief Executive Officers (CEOs), especially their technical expertise obtained through scientific doctoral training as well as post-Ph.D. research experience, as an important source of variation. A sample of publicly-listed biotechnology firms tracked from 1991 to 2007 engaged in licensing-out less frequently when led by CEOs with technical expertise, controlling for firms’ resources, including their citation-weighted patents. When they engaged in out-licensing, deals made by CEOs with the greatest technical expertise tended to generate a small decline in the ventures’ market capitalization around the announcement date, whereas deals made by other CEOs spurred increasing market capitalization. This study helps to expand our understanding of how CEOs influence technology ventures’ pursuit of out-licensing, and contributes to the broader conversation about how managerial resources shape technology and innovation outcomes.

Firm Innovation under Import Competition from Low-Wage Countries

In recent years, manufacturing firms in the United States have faced increasing import competition from low-wage countries, especially China. Does this competition hurt or help innovation by firms? This paper studies the effect of the surge in imports from China on innovation in the US manufacturing sector. We combine patent, firm and trade data during 1990-2006 for US publicly-listed firms in the Compustat dataset. We find consistent evidence that Chinese import competition had a positive effect on firm innovation, as measured by citation-weighted patent applications. This positive effect persists when we instrument import competition in the US by using Chinese import penetration in the United Kingdom. Next we investigate this relationship between import competition and innovation by considering industry and firm heterogeneity. We find that firms in low-tech industries and those with a lower degree of product differentiation show a significant positive response to import competition. Firms with a higher capital intensity and lower labor productivity also exhibit a greater response. These results are shown to be robust to a variety of measures for import penetration and innovation.

The wild west? Complementor performance following antitrust intervention against a dominant platform

Drawing on research on competitive repositioning, we analyze the relation between a regulatory intervention against a dominant technology platform and complementor performance. We examine whether antitrust regulators can spark new opportunities for complementors by weakening a dominant platform’s market power. Using a dataset on enterprise infrastructure software from 1998-2004, and a difference-in-differences design using matching and synthetic controls, we examine the relationship between the U.S. Department of Justice's antitrust intervention against Microsoft (a dominant enterprise server platform) and subsequent value creation and value capture by enterprise infrastructure applications firms (complementors). The data show that value creation—measured by citation-weighted patents of complementors—is increased following the antitrust intervention. In contrast, value capture—measured by profitability—is reduced. The findings suggest a social benefit to antitrust enforcement in the form of increased innovation but caution that disrupting the “order” of an industry may lead to wasteful development and losses in efficiency.

Corporate Social Responsibility and Technological Innovation

ABSTRACTThis study examines the relation between corporate social responsibility (CSR) and firm innovation. We replicate and extend the work of Mao and Weathers (2019), who investigate employee treatment and innovation, and find that CSR has an incremental effect on innovation outcomes (measured as citation-weighted patent counts) beyond the documented effect of employee treatment. The CSR effect mostly comes from CSR strengths rather than concerns. This effect remains robust after we address potential endogeneity concerns using three identification strategies. We also find that the CSR effect exists only in situations of more effective board monitoring, stronger CEO leadership, and greater employee human capital, and is greater in complex firms. Our overall evidence is consistent with the argument that CSR enhances technological innovation as it helps firms develop internal resources and capabilities related to creative corporate culture, long-term orientation, and employee knowledge and skills that are critical and conducive to innovation success.JEL Classifications: M14; O31.

Individualistic CEO and Corporate Innovation: Evidence from U.S. Frontier Culture

This paper examines the relationship between CEOs’ individualistic cultural background and corporate innovation among firms in the United States. Using hand-collected data on birthplaces of US-born CEOs, we provide robust evidence that CEOs born in frontier counties with a higher level of individualistic culture promote innovation performance. Firms led by such CEOs increase both quantity and quality of innovation outputs, measured by the number of patents, citation-weighted patents, and the market value of patents, and focus more on breakthrough innovation. Our extended analysis suggests that CEOs with an individualistic background tend to build an innovation-oriented corporate culture and to accumulate human capital by increasing the inflow of inventors, thus promoting corporate innovation.

Innovation spillover and merger decisions

The merger–innovation nexus has been well studied in the theoretical literature, but empirical evidence, particularly on the spillover impacts of innovation, is limited. Merger decisions are influenced by a series of macroeconomic and behavioural factors; however, internalizing innovation spillovers and keeping a competitive edge may also explain merger activities. In this paper, we investigate the impact of innovation spillovers on the likelihood of firms to merge, using a combined panel data set of mergers among publicly traded US manufacturing firms from 1980 to 2003. Innovation is measured using R&D investments and citation-weighted patents, and innovation spillover is proxied using the technological proximity of firms and rivals’ innovation. We include a series of control variables affecting merger decisions and address the potential endogeneity problem using previous R&D activities of firms. We find that innovative firms are on average more likely to merge. The results also show that within-industry inward spillovers increase the likelihood of mergers, but between-industry inward spillovers do not influence merger decisions significantly. Our main results are robust to alternative measures of innovation and spillovers as well as to different estimation methods such as propensity score matching.

From 'Rates of Innovation' to Measures for 'Innovation Quality and Culture'

This study provides formal theoretical evidence that the concept of 'rates of innovation' is not amenable to imposition of any preference structure, as such is misleading and non-robust. Dearth of robustness derives from the finding that a decreasing rate of innovation can be shown to be strictly preferred to either of an increasing or constant rate of innovation. This finding rules out either of patent counts, citation-weighted patent counts, or the term, 'innovation rates' as robust parameters for comparative studies of cross-sections of innovation activity. The formal theoretical model endogenously generates two parameters for comparative studies of cross-sections of innovation activity that, respectively are constructs for 'quality of innovation', and 'frequency', equivalently, 'culture of innovation'. Given the parameter for culture of innovation is derived, in entirety, from the quality of innovation parameter, it is obtained in context of a strict preference for higher quality innovations that is formally and theoretically established. A strict preference for higher quality innovations is shown, under regular conditions, to imply an intertemporal 'decreasing cascade' for each of quality of innovation, and frequency of innovation, a cascade that, simultaneously is susceptible to stochastic arrival of innovation events that induce upward 'jumps' to the intertemporal decreasing cascade process. Preliminary empirical tests show the quality of innovation parameter outperforms GDP Per Capita as measure of quality of innovation within cross-sections of countries. Given the terminology, 'studies of rates of innovation' embeds a misnomer, study findings recommend substitution of the terminology, 'studies of Innovation Quality and Culture (IQC)'.

Rising Markups, Common Ownership, and Technological Capacities

This paper analyses the impact of common ownership on markups and innovation and adds to the discussion of the recently observed patterns of a long term rise in market power. Using a rich panel of European manufacturing firms from 2005 to 2016, we structurally infer markups and construct a measure of common ownership. We use a propensity score reweighting estimator to eliminate biases due to observational characteristics and find an increase of firm markups ranging up to 3.4% in industries with high technological spillovers after the first exposure to common ownership. For companies directly held by common institutional investors, we also measure a positive effect on citation-weighted patents of up to 9.5% in high-spillover industries. Both findings are consistent with recent theoretical findings in Lopez and Vives (2019). We further exploit industry technology classifications by the European Commission to shed some light on the heterogeneity of the effect of common ownership across the sample.

Does Innovation Lead to More Productivity? Panel Data Evidence from U.S. Firms

Empirical research on the relationship between innovation and firm level productivity offers conflicting results. We investigate the impact of innovation on labour productivity through the construction of a unique panel data-set that merges information on roughly 5,000 publicly traded U.S. manufacturing firms from 1980-2003 with patent filings over the same time period. The large number of firms and long time span of the data allow us to control for the potentially confounding effects of unobservable firm and/or time specific shocks. While OLS estimates of citation-weighted patent stocks with respect to firm specific labour productivity are positive and statistically significant, corresponding results from instrumental variables (IV) and structural models are larger in magnitude, demonstrating the importance for accounting for potential simultaneity and sample selection bias. We also find that mergers are significantly correlated with a rise in citation weighted patent stocks and research and development (R&D) spending. Our interpretation is that larger firms spend more on research and development (R&D), which results in higher quality patents, and increased labour productivity.

Founder CEOs and innovation: Evidence from CEO sudden deaths in public firms

Using a unique dataset on U.S. publicly listed firms that experienced sudden deaths of CEOs during the 1979–2002 period, this paper investigates the relationship between founder CEOs and innovation in public firms. Our main results show that the exogenous change from a founder CEO to a professional CEO is associated with a 43.8% decrease in a firm's citation-weighted patent count, even when controlling for R&D expenditures, suggesting that founder CEOs are better managers of innovations than professional CEOs. To better understand the relationship, we also explore plausible mechanisms that may underlie this relationship. Our analyses show that founder-CEO-managed firms are more likely to generate innovations at the both tails of innovations’ quality distribution (highest and lowest quality patents) and explorative patents than professional-CEO-managed firms. We also determine that change in leadership from a founder CEO to a professional CEO leads employee inventors to leave the firm, suggesting that founder CEOs are better at retaining innovative minds than professional CEOs. However, we do not find evidence that founder-CEO-managed firms allocate more capital to R&D investments than professional-CEO-managed firms.

On accounting’s twenty-first century challenge: evidence on the relation between intangible assets and audit fees

We inform the policy debate arising from the dramatic shift in US firms’ balance sheets towards intangible assets that has created a challenge for market participants to estimate firm value. While accounting guidelines have failed to keep pace with this change, the auditors’ perspective on this issue remains unknown. Our study reveals that auditors also find it relatively more challenging to audit firms with higher intangible assets. Specifically, we document a strong positive relation between audit fee and the proportion of intangible assets, after controlling for standard audit fee determinants. Further, we show that firms with higher proportion of intangible assets are associated with higher auditor effort and higher litigation risk for auditors, manifesting in higher audit fee. Ex post proxies of innovation success, such as patents, citation-weighted patents and ex ante R&D expense, indicate that firms with greater likelihood of innovation success are also charged higher audit fees. We find that high intangible asset firms in concentrated patent-generating industries (i.e. with lower expected patent litigation) are charged lower audit fees than similar firms in patent-competitive industries.

Agglomeration and innovation: Selection or true effect?

This paper separates two mechanisms through which agglomeration increases average firm innovation: selection (less innovative firms being forced out of agglomerations) and true agglomeration (firms become more innovative). I apply a quantile regression to estimate the distribution of firm innovation and separate these two mechanisms. Linking a unique establishment-level dataset with the patent dataset in the state of Maryland for the period 2004–2013, I find that a 1-mile radius area with above-median employment concentration significantly encourages firm innovation. An average establishment that files for at least one patent during the study period increases citation-weighted patent applications by 31.2% to 31.5% in such employment centers. I also find evidence of selection: non-innovators are 1.3% less likely to survive in agglomerations. The coexistence of agglomeration and selection causes the result of an ordinary least squares regression to be upwardly biased. By eliminating the selection effect, this study more precisely estimates the agglomeration effect, which can be applied to cost–benefit and cost-effectiveness analyses of urban and industrial policies.

Manufacturing Clusters and Firm Innovation

This study examines how much different manufacturing clusters encourage per-establishment innovation measured by citation-weighted patent applications, and at which geographical scales they boost patent filings by the greatest magnitude. Using establishment and patent application data for the state of Maryland, 2004-2013, this study finds that the Metalworking Technology cluster, formed at 3 miles in radius, encourages innovation the most: The number of citation-weighted patent applications for firms in the cluster is 17.6% higher than that outside of the cluster. Food Processing and Manufacturing and Automotive clusters follow, at 1 and 2 mile(s) in radius, with an effect of 8.5% and 5.5%, respectively. A complete ranking of 20 manufacturing clusters is delivered. A description of how policy makers may use this ranking to target specific manufacturing clusters for economic development is included.

Team-Specific Capital and Innovation

We establish the importance of team-specific capital in the typical inventor's career. Using administrative tax and patent data for the population of US patent inventors from 1996 to 2012, we find that an inventor's premature death causes a large and long-lasting decline in their co-inventor's earnings and citation-weighted patents (−4 percent and −15 percent after 8 years, respectively). After ruling out firm disruption, network effects, and top-down spillovers as main channels, we show that the effect is driven by close-knit teams and that team-specific capital largely results from an “experience” component increasing collaboration value over time. (JEL J24, J31, M54, O31, O34)

Innovation: The Bright Side of Common Ownership?

A firm has inefficiently low incentives to innovate when other firms benefit from its innovative activity and the innovating firm does not capture the full surplus of its innovations. We provide conditions under which common ownership of firms mitigates this impediment to corporate innovation. Common ownership increases innovation when technological spillovers are sufficiently large relative to product market spillovers. Otherwise, the business stealing effect of innovation dominates and common ownership reduces innovation. Empirically, product market spillovers (as measured by Jaffe/Mahalanobis proximity in product market space) decrease the effect of common ownership on innovation inputs and outputs, whereas technology spillovers (proximity in patent space) increase the effect. The sign and magnitude of the relationship between common ownership and corporate innovation varies considerably across the universe of firms depending on the relative strength of product market and technology spillovers. When product market spillovers are relatively large, an increase from the 25th to the 75th percentile of common ownership is associated with a decrease of -8.4% in citation-weighted patents. But when technology spillovers are relatively large, the same increase in common ownership is associated with an increase of +12.5% in citation-weighted patents. Our results inform the debate about the welfare effects of increasing common ownership among U.S. corporations.

Innovation Spillover and Merger Decisions

Merger activities in innovative industries point to a relation between mergers and innovation. Firms' innovative ideas may spillover to other firms dis-incentivizing innovation activities, and merger may be a way to capture innovation spillover. The merger-innovation nexus has been well studied in the theoretical literature and recently in empirical papers, but empirical evidence on merger and innovation spillover is limited. In this paper, we investigate the impact of innovation spillovers on the likelihood of firms to merge, using a panel data set of mergers among publicly traded U.S. manufacturing firms from 1980 to 2003. In our empirical model, we also control for business cycles and proxies of neoclassical, behavioural and Q theories of mergers. Innovation is measured using R&D investments and citation-weighted patents, and innovation spillover is proxied using the technological proximity of firms. As a source of R\&D spillover (outward spillover), a firm can internalize its spillover effects by acquiring targets that benefit from the spillover. As a receiver of an R&D spillover (inward spillover), a firm may want to merge to control the negative impact of others' innovation on its competitive edge. We find that innovative firms are on average more likely to merge. These findings are robust to using a measure of patent ownership fragmentation as our instrumental variable. Our results also show that within-industry inward R&D spillovers increase mergers, but between-industry inward R&D spillovers do not influence merger decisions significantly. Our main results are robust to alternative measures of spillovers and different estimation methods.

How Do Inventors Respond to Financial Incentives? - Evidence from the 2001 Court Decision on Employee Inventions in Japan

Using a novel panel dataset of corporate inventors matched with their employers in Japan, we examine the effects of output-based financial incentives on corporate inventor’s performance. We exploit the 2001 court decision that discontinuously forced many firms to adopt or strengthen the financial incentives based on the commercial success of an invention. Our estimations that account for inventor heterogeneity reveal that the compulsion of stronger financial incentive did not increase citation-weighted patent counts at the inventor level and significantly decreased the number of science-based patents. These results show that financial incentives based on the commercialization performance of an invention can be counter-productive means to enhance inventors’ performance, and that the compulsion of such remuneration to employee-inventors in the article 35 of Japanese patent law could distort the efficiency of corporate R&D.