Are Scientific Indicators of Patent Quality Useful to Investors?
29 Pages Posted: 4 Nov 2005
Together with the number of patents and the value of R&D expenditures, scientific measures of patent quality give investors a useful basis upon which to judge the economic merit of the firm's inventive and innovative activity. Especially in the case of small cap and relatively low P/E high tech companies, we find a favorable stock-price influence when both the number of patents, the scientific merit of those patents, and R&D spending is high. Patent quality information also appears germane in the case of large cap high-tech companies with relatively high P/E ratios. In short, patent citation information may indeed help investors judge the future profit-earning potential of a firm's scientific discoveries.
Keywords: Patents, patent citations, market value, research and development
JEL Classification: G12, G31, O31, O32
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