Product Development Innovation: Insights from Trademarks
66 Pages Posted: 28 Mar 2015 Last revised: 10 Mar 2019
Date Written: March 8, 2019
In several large surveys of CEOs, trademarks rank as equally or more important than patents for firm innovation, growth and performance, and the OECD’s definition of innovation includes trademarks. The innovation literature, however, almost exclusively studies patents. We build a novel dataset of 123,545 trademark registrations by S&P 1500 firms from 1993 to 2011 to study the value of trademarks and how firms motivate trademark innovation. We find that firms registering more trademarks earn future increases in sales and profitability. One new trademark increases next-year sales by $1.85 million for a median firm in a low-patent (non-high-tech) industry. Trademark creation increases with the fraction of CEO compensation in the form of stock options, the convexity of CEO incentives, and the value of unvested options the CEO holds. Using a revised accounting rule, SFAS 123(R), as an exogenous shock to option compensation, we find that reductions in stock option compensation cause reductions in trademark creation. Thus, trademarks have value and CEO risk-taking incentives are important motivators of new product development innovation.
Keywords: Product Development, Trademarks, Innovation, Sales, Productivity, Stock Options, Vega, Incentives
JEL Classification: J33, M12, M41, M52, O31
Suggested Citation: Suggested Citation