Focus on Fewer but Better Patents when Stock Is Liquid

47 Pages Posted: 24 Feb 2020 Last revised: 9 Mar 2021

See all articles by Hyun Joong Im

Hyun Joong Im

The University of Seoul; Peking University - HSBC Business School

Srinivasan Selvam

Peking University - HSBC Business School

Kelvin Jui Keng Tan

University of Queensland - Business School; Financial Research Network (FIRN)

Date Written: March 7, 2021

Abstract

How do liquid stocks affect the quantity and economic value of patents? Using a quasi-random experiment, we show that liquidity increases the economic value of innovation. These results are mainly driven by innovation-oriented firms, such as science-based firms, software-related firms, and specialized suppliers. We also show that liquid stocks increase the economic value of patents by disciplining and incentivizing managers to focus on economically valuable innovation through intensified institutional monitoring and facilitated information production. A positive effect of stock liquidity on innovation value, combined with a negative effect of stock liquidity on innovation quantity, suggests that liquid stocks encourage managers to trade off the quantity of patents against the economic value of patents when developing innovation strategies.

Keywords: value of innovation, liquidity, feedback mechanism, institutional monitoring

JEL Classification: D22, G30, O32

Suggested Citation

Im, Hyun Joong and Selvam, Srinivasan and Tan, Kelvin Jui Keng, Focus on Fewer but Better Patents when Stock Is Liquid (March 7, 2021). Available at SSRN: https://ssrn.com/abstract=3516442 or http://dx.doi.org/10.2139/ssrn.3516442

Hyun Joong Im (Contact Author)

The University of Seoul ( email )

Korea, Republic of (South Korea)
+82-2-6490-2268 (Phone)
+82-2-6490-2219 (Fax)

Peking University - HSBC Business School ( email )

China

Srinivasan Selvam

Peking University - HSBC Business School ( email )

University Town
Shenzhen, 518055
China

Kelvin Jui Keng Tan

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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