Patent Quality and Firm Value: Evidence from Patent Examiners Busyness
50 Pages Posted: 11 Mar 2018 Last revised: 13 Feb 2020
Date Written: October 31, 2019
We study the causal effect of patent quality on firm value in the unique setting of patent examiner busyness which can negatively impact patent quality. This setting addresses the endogeneity issue as patent examiner busyness is unlikely related to firm fundamentals. We first document that that patents allowed by busy examiners tend to have lower quality as they have lower future citations and lead to lower firm profitability. Further, examiner busyness of firms’ patents significantly negatively predicts firms’ future stock returns, which is consistent with investor underreaction to examiner busyness. The return predictability of examiner busyness is stronger when firms have higher innovation intensity or there is limited investor attention to patent issuance. The effect of examiner busyness on returns last for two years without a reversal. These results together provide strong evidence that patent quality has a substantial casual effect on firm value.
Keywords: patent quality, patent examiners, firm value, stock returns, innovation, USPTO, investor underreaction
JEL Classification: G14, G32, G41, O31
Suggested Citation: Suggested Citation