Product Development Innovation: Insights from Trademarks

64 Pages Posted: 28 Mar 2015 Last revised: 28 Jul 2018

See all articles by Lucile Faurel

Lucile Faurel

Arizona State University

Qin Li

University of California, Irvine - Paul Merage School of Business

Devin M. Shanthikumar

University of California, Irvine - Paul Merage School of Business

Siew Hong Teoh

University of California, Irvine - Accounting Area

Date Written: July 17, 2018

Abstract

New product development is essential for firm growth and performance, and included in the OECD’s definition of innovation. We build a novel dataset of 123,545 trademark registrations by S&P 1500 firms from 1993 to 2011 to measure new product development and study the value of trademarks and how firms motivate trademark innovation. We find increases in subsequent sales and profitability when firms register more trademarks. For a median firm in a low-patent (non-high-tech) industry, one new trademark increases next-year sales by $1.85 million. We also find that 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, we find that reductions in stock option compensation cause reductions in trademark creation. Overall, the evidence indicates that 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

Faurel, Lucile and Li, Qin and Shanthikumar, Devin M. and Teoh, Siew Hong, Product Development Innovation: Insights from Trademarks (July 17, 2018). Available at SSRN: https://ssrn.com/abstract=2585804 or http://dx.doi.org/10.2139/ssrn.2585804

Lucile Faurel (Contact Author)

Arizona State University ( email )

W.P. Carey School of Business
School of Accountancy, B267H
Tempe, AZ 85287
United States
(480) 965-6216 (Phone)

Qin Li

University of California, Irvine - Paul Merage School of Business ( email )

Campus Drive
Irvine, CA 62697-3125
United States

Devin M. Shanthikumar

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
SB 440
Irvine, CA 92697-3125
United States

Siew Hong Teoh

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States

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