Knowledge Spillover Absorption and Corporate Innovation

Abstract

Understanding firms' ability to absorb external information is crucial for identifying firms that benefit most from knowledge spillovers. We introduce a novel measure of this ability -- absorption intensity -- based on external information contained in firms' patents. Using the American Inventor’s Protection Act as an exogenous shock, we show that firms with higher absorption intensity increase their patent output more in response to knowledge spillovers. These firms also produce higher-quality patents and experience greater growth in capital, labor, profit, and output. Our measure can be used in research on innovation policy and corporate decisions that involve acquisition of knowledge.

Keywords: Innovation, knowledge spillovers, information absorption, patent disclosure

JEL Classification: D83, G38, O3