Firm-level Patenting Research Articles

The effect of customer-base concentration on the relationship between patents and financial performance

PurposePrior research has produced conflicting results on the relationship between firm-level patenting activity and financial performance. To identify a factor that impacts the results, this study tests whether the level of customer-base concentration (defined as focusing on a small number of major customer sales transactions) changes the relationship between firm-level patenting activity and financial performance (return on assets: ROA).Design/methodology/approachUsing a longitudinal secondary dataset from Japanese manufacturers from 1991 to 2016, this study investigates the interaction effect between firm-level patenting activity and customer-base concentration. With additional analysis using multiple profitability measures, this study provides robust evidence that customer-base concentration is an important factor in changing the relationship between firm-level patenting activity and financial performance.FindingsThe analysis results show that there is a positive relationship between firm-level patenting activity and ROA. In addition, this relationship is positively moderated by the customer-base concentration. This means that suppliers can improve the performance of the patenting activity by concentrating on their customer base.Originality/valueBy identifying a moderating factor between patenting activity and financial performance, this study advances the interpretation of conflicting results in patent research. Moreover, this study reveals a situation where customer-base concentration, which has a direct negative impact on financial performance, leads to better financial performance. This also indicates that firm-level patenting activities may compensate for the negative aspects of customer-base concentration.

Diversification of procedural and administrative costs and innovation: Some firm-level evidence

We examine the diversification of administrative and procedural costs on patent stock using a large dataset from the European Patent Office with 15,000 firms for the period between 1995 and 2015. The results reveal that administrative and procedural costs are significant for firm-level patenting activity. However, not all administrative and procedural costs have equal effects. Higher administrative costs often encourage patent application and validation by solving the adverse selection problem and short-run opportunism, as well as other sources of asymmetric information. The effective administration of intellectual property law and low-cost enforcement are found to considerably foster patenting activity. The effects are robust for various mis-specification checks and do not disappear once country-level research and development infrastructure proxies are controlled for. The extreme bounds of administrative and procedural costs are computed across more than 5 billion regressions, and the sizeable impact of administration on patent application and validation outcomes is confirmed.

Induced Automation: Evidence from Firm-level Patent Data

Induced Automation: Evidence from Firm-level Patent Data

Absorption of foreign knowledge: the impact of immigrants on firm productivity

Abstract What role do immigrants play in firms’ ability to absorb and apply foreign knowledge? Based on a matched employer–employee dataset from Danish manufacturing firms over the period 2001–2011, this study examines the impact of foreign knowledge accessible by firms’ immigrant employees on firm-level total factor productivity (TFP). We construct various firm-specific absorbable foreign knowledge measures that link firms’ immigrant employees to the technological knowledge base of their country of origin. The empirical results suggest that firms employing immigrant employees have higher firm-level TFP outcomes and a higher probability of new firm-level patent applications. The average productivity gain associated with the hiring of one immigrant employee is about 1.5% in the year following the firm’s hiring decision. Additional results show that the estimated productivity increase varies with the level of education and the occupational positions of the immigrant employees. The results are robust to the inclusion of a large range of firm-specific controls and various sensitivity checks.

Clean Development Mechanism and Knowledge Spillovers: Evidence from Chinese Firm-level Patent Data

Under the Kyoto Protocol, Clean Development Mechanism (CDM) is expected to facilitate the North-South knowledge spillovers for climate-friendly technologies. This paper examines the effects of this voluntary international climate cooperation on firm innovation and knowledge spillovers through the lens of CDM projects hosted in China. Using a matched Difference-in-Differences (DID) approach, we find that CDM projects contribute to firms' innovation quantity, quality, and direction in renewable energy and energy-efficient technologies. These results can be explained by a rich set of project heterogeneity, capturing the learning-by-doing effect, the induced-innovation incentives, and the economics of scale. Furthermore, we explore the role of foreign sponsors in knowledge spillovers, measured by patent citations from sponsoring countries to the host country. Our results suggest that sponsoring firms play a technology-supporting role by raising the innovation quantity and quality while sponsoring governments serve as an intermediary role by facilitating citation flows.

When Does Information Disclosure Help Innovation? Evidence from Blue Sky Laws

Using historical firm-level patent and accounting data, we analyze how information disclosure affects firm innovation. To establish a causal link, we use the enactment of blue sky laws, the first form of investor protection laws, across some U.S. states at the beginning of the 20th century, when there was no federal regulation. These laws required firms to disclose information before selling their securities and increased penalties in case of financial fraud. Using archival records, we document that young innovative firms (startups) had a large share of intangible assets and relied heavily on equity financing (venture capital). In a difference-in-differences setting, we show that following the enactment of these laws, innovative firms that previously had limited access to external finance raised more funds and increased their innovation activity. Our results suggest that disclosure requirements help innovation when the information environment is weak to begin with.

Firm ownership, quality of government and innovation: Evidence from patenting in the telecommunication industry

Despite the wave of privatisation in recent decades, enterprises under government control still account for a large part of assets and employment in several countries and particularly continue to play a key role in certain network industries. We explore the potential role of State-Invested Enterprises (SIEs) as investors in innovation, with particular interest in that played by the institutional environment. We focus on the telecommunication industry, which has been affected by fundamental technological and organisational change, including liberalisation and privatisation, over the last decades but where public ownership still retains a major role. We draw on a longitudinal data set of 706 telecom companies from 91 countries over the 2007–2015 period and show that public ownership is positively correlated to patenting activity. We also find that - for both state-invested and private companies - improvements in institutional quality are positively associated with firm-level patenting, and that such a relation is stronger under public ownership. We offer an interpretation of these findings which shed new light on the role of SIEs as patient investors.

Political uncertainty and innovation: The relative effects of national leaders’ education levels and regime systems on firm-level patent applications

We explore the effect of political uncertainty on innovation. In particular, we examine the differential effects of two sources of uncertainty – leaders’ education levels and political regimes (i.e., presidential vs. parliamentary) – on patent applications. We posit that firms react to political uncertainty caused by the unexpected departure of a national leader by investing in patents as growth options. The empirical design analyzes a panel with information from over 62 million patent applications at the aggregated applicant level. Results show that leaders’ unexpected departures cause, on average, increases of approximately 9% in the aggregate growth of patent applications. We also find that the leader’s level of education and the country’s political regime system have significant effects on the relationship between political uncertainty and innovation. The difference between leaders with high and low levels of education accounts for 21% of the change in the growth of patent applications. Further, the effect of political uncertainty on innovation is amplified in presidential systems, which grant leaders more power and make electoral transitions less predictable. The differences between presidential and parliamentary systems account for approximately 16% of the change in the growth of patent applications. As a robustness check, we utilized a subsample of more than 170,000 firms with local and foreign patent applications, as well as a panel of over 5700 government non-profits, universities, and hospitals with local patent applications. Consistent with our theory, the former react to political uncertainty by investing in patents, while the latter remain unaffected. We contribute by showing the theoretical mechanisms linking leader and regime characteristics with patent applications.

The Rush for Patents in the Fourth Industrial Revolution: An Exploration of Patenting Activity at the European Patent Office

Objectives.The main objective of the present study is to provide a comprehensive coverage of the patenting activity at the European Patent Office by companies in the remit of the fourth industrial revolution (4IR). We also aim at moving forward the understanding of the firm-level patenting activity of 4IR technologies. Methodology. We do so by conducting an empirical assessment of the development of technologies related to the 4IR via the analysis of patents filed at the European Patent Office between 1985 and 2014. We employ a new matched patent-firm data set provided by the Bureau Van Dijk: ORBIS-IP. Findings. In line with results from the recent literature, we find evidence of a surge in patenting activity related to the 4IR in the past three decades, particularly in networked devices. Our results also suggest that firms filing 4IR patents have become progressively younger on average. At the same time, we find a steady growth in the average number of 4IR patent applications filed yearly by each company. Research limits. Our exploration is a first step towards a better comprehension of the 4IR patent arena. Being mainly a “thick” description, we did not analyze antecedents and effects of 4IR patent applications. A comparative and longitudinal analysis of patent applications and patents granted would be a first step in this direction. As a second step, quantitative and qualitative studies on how 4IR patents contribute to firms’ exploration and exploitation capabilities as well as to firm performance would be highly beneficial. Practical implications. Further variance decompositions show that the surge in 4IR patent applications is mainly explained by incumbent firms filing more 4IR patent applications over time, rather than new entrants progressively populating the 4IR world. Finally, we uncover a general trend emerging at the firm level, whereby firms tend to specialize in few technological areas and avoid differentiation. Originality of the study. Despite a surging interest related to the 4IR from different stakeholders (mainly practitioners and policy makers), comparatively less attention has come from academia, which has focused on the single technologies comprising the 4IR such as artificial intelligence, additive manufacturing and the internet of things. Although there is a solid body of scholarship in the area of engineering and information systems that has focused on the topic (see surveys from Lu, 2017 and Liao, 2017), comparatively less studies are available within the management and economics fields. We aim at fill this gap by providing a detailed empirical assessment of the 4IR as a whole. We do so by analyzing patenting activity at the EPO in all the possible technological fields comprising the 4IR. We also attempt a first focus of patenting activity in the 4IR at the firm-level by characterizing companies along several dimensions.

Knowledge spillovers through inventor mobility: the effect on firm-level patenting

Labor mobility is heralded as a key channel of knowledge spillovers between firms. However, the empirical evidence on labor mobility’s effects on firm performance leaves many unanswered questions. In this paper, we analyze the effect of inventor mobility on firm-level patenting activity by studying a sample of European RD however, hiring inventors with several prior patents and different kinds of technological expertise contributes to firms’ future patenting. Furthermore, hiring inventors from actively patenting firms contributes to future patenting. We also find that outbound mobility of inventors weakens the source firm’s patenting performance, especially when the firm loses inventors who have been highly productive, have worked in the firm’s core field of technology or move to technologically similar firms.

Using the Variation in Transaction Costs to Explain the Propensity to Patent: Some Firm-Level Evidence

Do lower transaction costs induce innovation? We exploit the variation in transaction costs across firms and countries to explain the firm-level propensity to innovate. Drawing on a large dataset from European Patent Office (EPO) covering over 15,000 firms from 100 countries over the period 1991-2015, we compute the conditional probabilities of individual firms to acquire a valid based on the validation outcomes and examine whether lower transaction costs encourage firm-level innovation. Our empirical strategy addresses firm-level idiosyncrasies, country-level unobserved effects and common technology shocks that potentially invoke omitted variable bias in the effects of transaction costs on the propensity to patent. Numerous indicators of transaction costs are clustered into four specific categories: (i) Shleifer-La Porta (administrative), (ii) Northian (cross-border), (iii) Coasean (procedural & contractual) and (iv) Williamsonian (intra-firm). Our investigation reveals that higher transaction costs systematically account for the failure of firms to acquire a valid patent and to innovate. The results plausibly indicate that higher costs across firms and countries are associated with a marked drop in firm-level propensity to patent. Controlling for unobserved heterogeneity across firms, we employ the negative binomial model to examine the contribution of transaction costs to firm-level patenting propensities. The evidence suggests that not all transaction costs are created equal. Higher administrative transaction costs are associated with persistently higher number of valid patents as such costs tend to address moral hazard, opportunistic behavior and other sources of asymmetric information and potentially deter copy-cat imitating firms from entry. On the other hand, decreasing cross-border, procedural and intra-firm transaction costs leads to consistently higher number of valid patents being granted. The estimated propensities to patent are further tested using extreme bounds analysis by running more than 13 million combinations of the core regression model which confirms the importance of transaction costs in explaining differential propensities to patent across firms and countries.

Impact of patenting on firms' performance: an empirical investigation based on manufacturing firms in India

The study aims to estimate the impact of R&D expenditure and patenting on the performance of firms using productivity, profitability and Tobin's q ratio as the performance indicators. The study uses firm-level data of 489 high- and medium-technology firms during the period of 2000–2010. We employ relatively a new source of data particularly in the context of India, firm-level patent granted, that has not been explored earlier. The study finds that firms patenting result in productivity improvement of firms, whereas R&D expenditure does not. The study further finds the evidence of positive impact of patenting on financial performance of firm with significant differences between foreign and domestic firms.

Does Patent Litigation Have an Adverse Effect on Patent Grants at the Firm Level?

This paper examines the effect of patent litigation on patenting-intense firms' knowledge production. Utilizing the knowledge production function approach in the patenting literature, I hypothesize that increases in patent litigation at the firm level reduces firm-level resources which in turn reduces knowledge production. To test the hypothesis, I construct a new, unique dataset by linking firm-level patent, financial, and patent litigation data for 194 firms from 2000-2010. Specifying a dynamic non-linear GMM model, I find that an increase in past patent litigation has a small, but statistically significant negative effect on patent production for small firms relative to large firms.

Directing Technical Change from Fossil Fuel to Renewable Energy Innovation: An Application Using Firm Level Patent Data

Directing Technical Change from Fossil Fuel to Renewable Energy Innovation: An Application Using Firm Level Patent Data

On the Effectiveness of Patenting Strategies in Innovation Races

Which, if any, of a firm’s inventions should it patent? Should it patent at all? Many companies engaged in an innovation race seek a patenting strategy that balances protection of their intellectual property against the knowledge spillovers resulting from disclosure requirements. Not much is known about factors that determine the patenting strategy best able to resolve this trade-off. Although scholars in various management, economics, and engineering disciplines have researched patents and patenting regimes, little work has addressed the normative issues that pertain to forming an appropriate firm-level patenting strategy. We develop an inventory of real-life patenting strategies and integrate them into a coherent framework. Our simulation model characterizes the optimal patenting choices for different environmental and firm-level contingencies while capturing the dynamics between competing firms. We identify the firm’s research and development strategy as the most salient determinant of its optimal patenting strategy. Our research contributes to establishing a contingency theory of patenting strategies.This paper was accepted by David Hsu, entrepreneurship and innovation.

On the Effectiveness of Patenting Strategies in Innovation Races

Which, if any, of a firm’s inventions should it patent? Should it patent at all? Many companies engaged in an innovation race seek a patenting strategy that balances protection of their intellectual property against the knowledge spillovers resulting from disclosure requirements. Not much is known about factors that determine the patenting strategy best able to resolve this trade-off. Although scholars in various management, economics, and engineering disciplines have researched patents and patenting regimes, little work has addressed the normative issues that pertain to forming an appropriate firm-level patenting strategy. We develop an inventory of real-life patenting strategies and integrate them into a coherent framework. Our simulation model characterizes the optimal patenting choices for different environmental and firm-level contingencies while capturing the dynamics between competing firms.We identify the firm’s research and development strategy as the most salient determinant of its optimal patenting strategy. Our research contributes to establishing a contingency theory of patenting strategies.

Directing Technical Change from Fossil-Fuel to Renewable Energy Innovation: An Empirical Application Using Firm-Level Patent Data

Directing Technical Change from Fossil-Fuel to Renewable Energy Innovation: An Empirical Application Using Firm-Level Patent Data

Network Characteristics and Patenting in Biotechnology, 1990-2006

In this study, the authors focus on specifically which types of networks and what types of relationships matter most for the focal firm’s innovative performance in biotechnology patenting. They suggest that certain network characteristics, such as quality and the source of knowledge, and the quality of relationships among actors may have a profound effect on the knowledge exchange and hence the number of patents granted to the firm. The authors focus on the research coauthorship networks of 381 firms in the U.S. biotechnology industry over a span of 17 years, from 1990 to 2006. In the biotechnology industry, firms depend heavily on the social network of academic scientists for the exchange and production of knowledge, with firm-level patenting closely linked to it. Their findings largely support the hypotheses, suggesting the necessity to consider the characteristics of the actors and the qualitative nature of the relationships in the network while assessing the role of the firm’s networks on its patenting.

Multi-Jurisdictional Tax Incentives and the Location of Innovative Activities

Research and development (R&D) tax incentives offered by foreign countries and differences between U.S. and foreign tax rates provide opportunities that may affect the location of U.S. multinationals' innovative activities. Using firm-level patenting data to help identify the country-specific location of innovations from 1986 to 2000, I examine the relation between innovative activities performed in a foreign country and these tax incentives. I find evidence that the foreign percentage of innovative activities is associated with the attractiveness of foreign R&D tax incentives. In addition, the results suggest that firms in excess foreign tax credit positions decrease the amount of R&D activities in a foreign location with increased foreign tax rates, consistent with income shifting incentives. In contrast, I find that the firms in deficit foreign tax credit positions increase their foreign R&D activities with increasing foreign tax rates.

Applicant and examiner citations in U.S. patents: An overview and analysis

Prior art patent citations have become a popular measure of patent quality and knowledge flow between firms. Interpreting these measurements is complicated, in some cases, because prior art citations are added by patent examiners as well as by patent applicants. The U.S. Patent and Trademark Office (USPTO) adopted new reporting procedures in 2001, making it possible to measure examiner and applicant citations separately for the first time. We analyzed prior art citations listed in all U.S. patents granted in 2001–2003, and found that examiners played a significant role in identifying prior art, adding 63% of citations on the average patent, and all citations on 40% of patents granted. An analysis of variance found that firm-specific variables explain most of the variation in examiner-citation shares. Using multivariate regression, we found that foreign applicants to the USPTO had the highest proportion of citations added by examiners. High-volume patent applicants had a greater proportion of examiner citations, and a substantial number of firms won patents without listing a single applicant citation. In terms of technology, we found higher examiner shares among patents in electronics, communications, and computer-related fields. Taken together, our findings suggest that firm-level patenting practices, particularly among high-volume applicants, have a strong influence on citation data and merit additional research.