Competition, Non-Patented Innovation, and Firm Value
68 Pages Posted: 22 Nov 2017 Last revised: 26 Aug 2019
Date Written: August 26, 2019
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: Suggested Citation