Patent Quality, Firm Value, and Investor Underreaction: Evidence from Patent Examiner Busyness
50 Pages Posted: 11 Mar 2018 Last revised: 20 Jan 2021
Date Written: January 20, 2021
We attempt to study the causal effect of patent quality on firm value in the setting of patent examiner busyness, which mitigates endogeneity concerns because examiner busyness is unlikely related to firm fundamentals. We first show that patents allowed by busy examiners tend to have lower quality. Further, examiner busyness of firms’ patents negatively predicts firms’ future stock returns, which is consistent with investor underreaction to examiner busyness. The return predictability of examiner busyness increases in firms’ innovation intensity, product market threats, and limited investor attention to patent issuance. The abnormal returns associated with examiner busyness do not experience a long-term reversal.
Keywords: patent quality, examiner busyness, firm value, stock returns, investor underreaction.
JEL Classification: G14, G32, G41, O31
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