Patent Quality, Firm Value, and Investor Underreaction: Evidence from Patent Examiner Busyness
64 Pages Posted: 11 Mar 2018 Last revised: 25 Jun 2021
Date Written: June 25, 2021
This paper attempts to study the causal effect of examiner busyness on patent quality and firm value. While examiner busyness is unlikely related to firm fundamentals and mitigates endogeneity concerns to some extent, we explore a variety of identification approaches to establish the causal link. Using a broad set of patent quality measures, we document strong evidence that patents allowed by busy examiners exhibit significantly lower quality. Further, examiner busyness of firms’ patents negatively predicts the 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. Examiners’ experience helps attenuate the negative effect of examiner busyness.
Keywords: patent quality, examiner busyness, stock returns, investor underreaction.
JEL Classification: G14, G32, G41, O31
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