Research

Do Patent Publication Practices Affect the Value of Corporate Innovation? (JMP)

In this paper, I consider the possibility that patent publication prior to patent granting has real effects on the value of patents and overall firm value, particularly for small innovative firms. The American Inventors Protection Act of 1999 mandated that patents filed on or after November 29, 2000, must be published 18 months after their earliest effective file date. I analyze the effect of patent publication practices on the value of corporate innovation and further investigate that effect based on firm size, industry, and level of competitiveness in that industry. I show that early patent publication reduces patent value, likely because the market assumes that competitors have had time to adjust to previously published innovations. Additionally, I make the argument that this effect on a patent’s value will be affected by competitors’ ability to “design around” patents published prior to granting. I also find that early patent publication can reduce the value of patents granted to small firms by up to twice as much as it reduces the value of those granted to all firms. These results contribute to the literature on the economic value of innovation and the different innovative capabilities of firms.

Do Institutional Investors Recognize and Reward Green Patenting?

I examine the value of green patents and the response of institutional investors to green innovation. I observe that green patents are more valuable than non-green patents, and institutional investors increase their holdings of firms that have more green innovation. Transient institutions—characterized by short investment horizons and high turnover—work to capture the returns that firms experience from the more highly valued green innovation. Quasi-indexer institutions—which have low turnover and exhibit a buy-and-hold investment strategy—likely increase their holdings of green innovative firms because they interpret green patenting as a positive signal of firm growth. The portfolio weight of firms with green patents also increases within these institutions' holdings. However, I find suggestive evidence that institutional investors only reward green patenting at firms that also have strong Environmental, Social, and Governance (ESG) scores. Results shed light on the value of green innovation and the ways different sophisticated investors respond to firms producing this type of asset.