Markets in Intangibles: Patent Licensing

33 Pages Posted: 29 Jul 2001

See all articles by Feng Gu

Feng Gu

State University of New York at Buffalo

Baruch Lev

New York University - Stern School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 2001


The absence of organized markets in intangibles has been a major hindrance to their recognition as assets in financial reports. Economic conditions, however, change fast and markets in intangibles, particularly in patents and know-how, are operating both off and on-line (Internet). We examine various valuation and disclosure aspects of the most active of these markets - the licensing of patents and know-how - which has grown substantially in recent years.

Our findings indicate that: (a) a significant nonuniformity exists in the financial reporting of royalty (licensing) income across firms, (b) royalty income is a highly relevant variable to investors, (c) in addition to being an important source of income, the intensity of patent royalties provides investors with a strong signal concerning the value and potential of R&D expenditures, and (d) given both the direct and indirect (signaling) valuation implications of royalty income, and the heightened public concern about the adequacy of information concerning intangibles, accounting standard-setters should reevaluate firms' disclosure of various aspects of patents, technology, and know-how.

Keywords: Patent licensing; Royalty; Intangibles

JEL Classification: G12, M41

Suggested Citation

Gu, Feng and Lev, Baruch Itamar, Markets in Intangibles: Patent Licensing (May 2001). Available at SSRN: or

Feng Gu

State University of New York at Buffalo ( email )

12 Capen Hall
School of Management
Buffalo, NY 14221

Baruch Itamar Lev (Contact Author)

New York University - Stern School of Business ( email )

40 West 4th Street, Suite 400
New York, NY 10012
United States
212-998-0028 (Phone)
212-995-4001 (Fax)


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