Patent Quality, Firm Value, and Investor Underreaction: Evidence from Patent Examiner Busyness

50 Pages Posted: 11 Mar 2018 Last revised: 20 Jan 2021

See all articles by Tao Shu

Tao Shu

The Chinese University of Hong Kong, Shenzhen; Shenzhen Finance Institute

Xuan Tian

Tsinghua University - PBC School of Finance

Xintong Zhan

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Date Written: January 20, 2021

Abstract

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

Suggested Citation

Shu, Tao and Tian, Xuan and Zhan, Xintong, Patent Quality, Firm Value, and Investor Underreaction: Evidence from Patent Examiner Busyness (January 20, 2021). PBCSF-NIFR Research Paper, Available at SSRN: https://ssrn.com/abstract=3137894 or http://dx.doi.org/10.2139/ssrn.3137894

Tao Shu

The Chinese University of Hong Kong, Shenzhen ( email )

Shenzhen Finance Institute ( email )

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

Xintong Zhan (Contact Author)

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
Shatin, NT
Hong Kong
(852) 3943-4179 (Phone)

HOME PAGE: http://sites.google.com/view/xintongzhan

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