Effect of Stock Liquidity on the Economic Value of Patents: Evidence from U.S. Patent Data

Im, Hyun Joong; Selvam, Srinivasan; Tan, Kelvin Jui Keng

doi:10.2139/ssrn.3516442

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Effect of Stock Liquidity on the Economic Value of Patents: Evidence from U.S. Patent Data

International Review of Financial Analysis, Volume 94, Article 103314, July 2024

49 Pages Posted: 24 Feb 2020 Last revised: 15 Apr 2024

See all articles by Hyun Joong Im

Srinivasan Selvam

EDHEC Business School - EDHEC Infrastructure Institute

Kelvin Jui Keng Tan

University of Queensland - Business School; Financial Research Network (FIRN)

Date Written: April 15, 2024

Abstract

Exploiting the Russell index reconstitutions as an instrumental variable, we show that an increase in stock liquidity is associated with an increase in the economic value of innovation. We also show that liquid stocks result in improved information production and institutional monitoring, which facilitate feedback effects and instill discipline in managers to prioritize economically valuable innovation. A positive effect of stock liquidity on innovation value, together with a negative effect of stock liquidity on innovation quantity, suggests that liquid stocks present managers with a tradeoff between the quantity of innovation and its value to maximize firm value.

Keywords: value of innovation, liquidity, feedback mechanism, institutional monitoring

JEL Classification: D22, G30, O32

Suggested Citation: Suggested Citation

Im, Hyun Joong and Selvam, Srinivasan and Tan, Kelvin Jui Keng, Effect of Stock Liquidity on the Economic Value of Patents: Evidence from U.S. Patent Data (April 15, 2024). International Review of Financial Analysis, Volume 94, Article 103314, July 2024, Available at SSRN: https://ssrn.com/abstract=3516442 or http://dx.doi.org/10.2139/ssrn.3516442