Software Patents and Firm Value: A Real Options Perspective on the Role of Innovation Orientation and Environmental Uncertainty

Information Systems Research, 2019, volume 30, no. 3, pp. 1073-1097

52 Pages Posted: 12 Jun 2014 Last revised: 8 Oct 2019

See all articles by Sunghun Chung

Sunghun Chung

Santa Clara University - Leavey School of Business

Animesh Animesh

McGill University

Kunsoo Han

McGill University

Alain Pinsonneault

McGill University - Desautels Faculty of Management

Date Written: February 11, 2019

Abstract

While software patents have been growing steadily since 1996 when the restrictions on the patentability of software were eliminated, their value and impacts on firm’s profits remain unclear and ambiguous. Drawing on the real option theory and the literature on exploration and exploitation, we develop a novel theoretical framework to assess the value of software patent. Moreover, we examine the impact of contextual factors related to the nature of innovation underlying firms’ patent portfolios (exploitative vs. explorative) and the environmental uncertainty (competitiveness and dynamism) on the value of software patents. Specifically, we examine the interaction effect of a firm’s software patent stock and its innovation orientation on firm in markets exhibiting different levels of environmental uncertainty. Based on a large panel dataset consisting of 602 US firms, our results indicates that a software patent portfolio having higher levels of explorative orientation is associated with higher firm value (as measured by Tobin’s q) in market environments exhibiting low dynamism and high competitiveness. In contrast, a software patent portfolio with higher levels of exploitative orientation is associated with higher firm value in market environments exhibiting high dynamism and low competitiveness. We discuss the implications for research and practice.

Keywords: software patents, real option theory, innovation orientation, environmental uncertainty, firm value, exploration, exploitation

JEL Classification: O34, O31, O32, C33

Suggested Citation

Chung, Sunghun and Animesh, Animesh and Han, Kunsoo and Pinsonneault, Alain, Software Patents and Firm Value: A Real Options Perspective on the Role of Innovation Orientation and Environmental Uncertainty (February 11, 2019). Information Systems Research, 2019, volume 30, no. 3, pp. 1073-1097, Available at SSRN: https://ssrn.com/abstract=2448518 or http://dx.doi.org/10.2139/ssrn.2448518

Sunghun Chung (Contact Author)

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

Animesh Animesh

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Kunsoo Han

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Alain Pinsonneault

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

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