Competition, Non-Patented Innovation, and Firm Value

68 Pages Posted: 22 Nov 2017 Last revised: 26 Aug 2019

See all articles by Scott B. Guernsey

Scott B. Guernsey

University of Cambridge - Judge Business School

Date Written: August 26, 2019

Abstract

This paper studies how competition impacts non-patented corporate innovation and firm value by exploiting adoptions of state anti-plug molding laws – laws that prohibit “unscrupulous” reverse engineering by competitors – and their subsequent invalidation by the U.S. Supreme Court. Firms decrease patenting activity following the laws’ adoptions while also showing increasing investment spending, profitability, and value. Value gains are larger for firms at greater risk of imitation, and that are more innovative. After the laws are overturned, firms reinitiate patenting whereas prior investment spending, profitability, and value gains dissipate. These results suggest that more intense product market competition disincentivizes value-enhancing corporate innovation.

Keywords: Product market competition, corporate innovation, firm value, anti-plug molding laws

JEL Classification: G32, K22, O31, O32, O34

Suggested Citation

Guernsey, Scott B., Competition, Non-Patented Innovation, and Firm Value (August 26, 2019). Available at SSRN: https://ssrn.com/abstract=3074622 or http://dx.doi.org/10.2139/ssrn.3074622

Scott B. Guernsey (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

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