Patent Quality and Firm Value: Evidence from Patent Examiners Busyness

60 Pages Posted: 11 Mar 2018 Last revised: 29 Oct 2020

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: August 25, 2020

Abstract

We study the causal effect of patent quality on firm value in a unique setting of patent examiner busyness which can negatively affect patent quality. This setting mitigates endogeneity concerns as patent examiner busyness is unlikely related to firm fundamentals. We first document that patents allowed by busy examiners tend to have lower quality as they are associated with lower probabilities of future litigation, higher probabilities of being invalidated conditional on litigation, lower future citations, and lower operating performance of filing firms. 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 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. These results together provide strong evidence that patent quality has a substantial casual effect on firm value.

Keywords: patent quality, patent examiners, examiner busyness, firm value, stock returns, innovation, USPTO, investor underreaction.

JEL Classification: G14, G32, G41, O31

Suggested Citation

Shu, Tao and Tian, Xuan and Zhan, Xintong, Patent Quality and Firm Value: Evidence from Patent Examiners Busyness (August 25, 2020). 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

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
274
Abstract Views
1,499
rank
126,152
PlumX Metrics