Product Development Innovation: Insights from Trademarks
64 Pages Posted: 28 Mar 2015 Last revised: 28 Jul 2018
Date Written: July 17, 2018
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: Suggested Citation