Real Options, Patents, Productivity and Market Value: Evidence from a Panel of British Firms

Institute for Fiscal Studies, Working Paper No. W00/21

38 Pages Posted: 21 Mar 2001

See all articles by Nicholas Bloom

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

John Van Reenen

London School of Economics - Centre for Economic Performance (CEP); Stanford Graduate School of Business; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

Date Written: February 2001

Abstract

Patents citations are a potentially powerful indicator of technological innovation. Analysing the new IFS-Leverhulme database on over 200 major British firms since 1968 we show that patents have an economically and statistically significant impact on firm-level productivity and market value. We also find that while patenting feeds into market values immediately it appears to have a slower effect on productivity. This is potentially because of the need for costly investment in new equipment, training and marketing required to embody patents into new products and processes. This may generate valuable real options because patents provide exclusive rights to develop new innovations, thereby enabling firms to delay their investments. We find that higher market uncertainty, which increases the value of real options, reduces the impact of new patents on productivity. These real options effects have implications for the role of macro and micro stability in the take up of new technologies and productivity growth.

Keywords: Patents, Productivity, market value, real options

JEL Classification: O33

Suggested Citation

Bloom, Nicholas and Van Reenen, John Michael, Real Options, Patents, Productivity and Market Value: Evidence from a Panel of British Firms (February 2001). Institute for Fiscal Studies, Working Paper No. W00/21. Available at SSRN: https://ssrn.com/abstract=261554 or http://dx.doi.org/10.2139/ssrn.261554

Nicholas Bloom (Contact Author)

Stanford University - Department of Economics ( email )

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HOME PAGE: http://economics.stanford.edu/faculty/bloom

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John Michael Van Reenen

London School of Economics - Centre for Economic Performance (CEP) ( email )

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Stanford Graduate School of Business ( email )

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Centre for Economic Policy Research (CEPR)

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