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

64 Pages Posted: 11 Mar 2018 Last revised: 25 Jun 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: June 25, 2021

Abstract

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

Suggested Citation

Shu, Tao and Tian, Xuan and Zhan, Xintong, Patent Quality, Firm Value, and Investor Underreaction: Evidence from Patent Examiner Busyness (June 25, 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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