Patent Quality and Firm Value: Evidence from Patent Examiners Busyness

50 Pages Posted: 11 Mar 2018 Last revised: 13 Feb 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: October 31, 2019

Abstract

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

Shu, Tao and Tian, Xuan and Zhan, Xintong, Patent Quality and Firm Value: Evidence from Patent Examiners Busyness (October 31, 2019). 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

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