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Software Patents and Firm Value: A Real Options Perspective on the Role of Innovation Orientation and Environmental Uncertainty

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  • Sunghun Chung

    (Leavey School of Business, Santa Clara University, Santa Clara, California 95053)

  • Animesh Animesh

    (Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada)

  • Kunsoo Han

    (Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada)

  • Alain Pinsonneault

    (Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada)

Abstract

Although software patents have been growing steadily since 1996, when the restrictions on the patentability of software were eliminated, their value and impacts on the firm’s profits remain unclear and ambiguous. Drawing on the real options theory and the literature on exploration and exploitation, we develop a novel theoretical framework to assess the value of software patents. Moreover, we examine the impact of contextual factors related to the nature of innovation underlying firms’ patent portfolios (exploitative versus explorative) and the environmental uncertainty (competitiveness and dynamism) on the value of software patents. Specifically, we examine the interaction effect of a firm’s software patent stock and its innovation orientation on firm value in markets exhibiting different levels of environmental uncertainty. Based on a large-panel data set consisting of 602 U.S. firms, our results indicate that a software patent portfolio having higher levels of explorative orientation is associated with a higher firm value (as measured by Tobin’s q ) in environments exhibiting low dynamism and high competitiveness. By contrast, a software patent portfolio with higher levels of exploitative orientation is associated with a higher firm value in environments with high dynamism and low competitiveness. We discuss the implications for research and practice.

Suggested Citation

  • Sunghun Chung & Animesh Animesh & Kunsoo Han & Alain Pinsonneault, 2019. "Software Patents and Firm Value: A Real Options Perspective on the Role of Innovation Orientation and Environmental Uncertainty," Information Systems Research, INFORMS, vol. 30(3), pages 1073-1097, September.
    • Handle: RePEc:inm:orisre:v:30:y:2019:i:3:p:1073-1097
    DOI: 10.1287/isre.2019.0854
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