The Use and Misuse of Patent Data: Issues for Corporate Finance and Beyond

127 Pages Posted: 18 Nov 2017

See all articles by Josh Lerner

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Private Capital Research Institute

Amit Seru

Stanford University

Multiple version iconThere are 2 versions of this paper

Date Written: November 15, 2017

Abstract

Patents and citations are powerful tools for understanding innovative activity inside the firm, and are increasingly use in corporate finance research. But due to the complexities of patent data collection and the changing spatial and industry composition of innovative firms, biases may be introduced. We highlight several patent-level biases induced by truncation of reported patent awards and citations, affecting estimates of time trends and patterns across technology classes and regions. We then introduce measures of patent and citation biases. When aggregated at the firm level, these survive popular methods of adjustment and are correlated with firm-level characteristics. We show that these issues can lead to problematic – and ex ante predictable – inferences, using several examples from prominent streams of finance literature that use patent data. We suggest a number of concrete steps that researchers can employ to avoid biased inferences.

JEL Classification: O34, G30

Suggested Citation

Lerner, Josh and Seru, Amit, The Use and Misuse of Patent Data: Issues for Corporate Finance and Beyond (November 15, 2017). Available at SSRN: https://ssrn.com/abstract=3071750 or http://dx.doi.org/10.2139/ssrn.3071750

Josh Lerner (Contact Author)

Harvard Business School - Finance Unit ( email )

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Harvard University - Entrepreneurial Management Unit

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National Bureau of Economic Research (NBER)

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Amit Seru

Stanford University ( email )

Stanford, CA 94305
United States

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