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The market value of patents and R&D: Evidence from European firms

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Author Info

  • Bronwyn H. Hall

    (University of California at Berkeley, University of Maastricht, NBER, and IFS London.)

  • Grid Thoma

    (University of Camerino and CESPRI Bocconi University, Milano, Italy.)

  • Salvatore Torrisi

    (Bologna University and CESPRI Bocconi University, Milan, Italy.)

Abstract

This paper provides novel empirical evidence on the private value of patents and R&D. We analyze an unbalanced sample of firms from five EU countries - France, Germany, Switzerland, Sweden and the UK in the period 1985-2005. We explore the relationship between firm’s stock market value and patents, accounting for the ‘quality’ of EPO patents. We find that Tobin’s q is positively and significantly associated with R&D and patent stocks. In contrast to results for the U.S., forward citations do not add information beyond that in patents. However, the composite quality indicator based on backward citations, forward citations and the number of technical fields covered by the patent is informative for value. Software patents account for a rising share of total patents in the EPO. Moreover, some scholars of innovation and intellectual property rights argue that software and business methods patents on average are of poor quality and that these patents are applied for merely to build portfolios rather than for protection of real inventions. We therefore tested for the impact of software patents on the market value of the firm and did not find any significant effect, in contrast to results for the United States. However, in Europe, such patents are highly concentrated, with 90 per cent of the software patents in our sample held by just 15 of the firms.

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Bibliographic Info

Paper provided by KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy in its series KITeS Working Papers with number 186.

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Length: pages 43
Date of creation: Nov 2006
Date of revision: Nov 2006
Handle: RePEc:cri:cespri:wp186

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Keywords: Market Valuation; Intangible Assets; Patents; Software.;

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References

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  1. Hall, Bronwyn H. & Mairesse, Jacques, 1995. "Exploring the relationship between R&D and productivity in French manufacturing firms," Journal of Econometrics, Elsevier, vol. 65(1), pages 263-293, January.
  2. Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 529-54, July.
  3. Hall, Bronwyn H. & MacGarvie, Megan, 2010. "The private value of software patents," Research Policy, Elsevier, vol. 39(7), pages 994-1009, September.
  4. Joshua Lerner, 1994. "The Importance of Patent Scope: An Empirical Analysis," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 319-333, Summer.
  5. Griliches, Zvi, 1990. "Patent Statistics as Economic Indicators: A Survey," Journal of Economic Literature, American Economic Association, vol. 28(4), pages 1661-1707, December.
  6. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-58, June.
  7. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  8. Hall, Bronwyn H., 1999. "Innovation and Market Value," Department of Economics, Working Paper Series qt9f31v1rw, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  9. Hall, B. & Jaffe, A. & Trajtenberg, M., 2001. "The NBER Patent Citations Data File: Lessons, Insights and Methodological Tools," Papers 2001-29, Tel Aviv.
  10. Cynthia A. Montgomery & Birger Wernerfelt, 1988. "Diversification, Ricardian Rents, and Tobin's q," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 623-632, Winter.
  11. Arundel, Anthony, 2001. "The relative effectiveness of patents and secrecy for appropriation," Research Policy, Elsevier, vol. 30(4), pages 611-624, April.
  12. Zvi Griliches, 1998. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 17-45 National Bureau of Economic Research, Inc.
  13. Arundel, Anthony, 2001. "The relative effectiveness of patents and secrecy for appropriation," Open Access publications from Maastricht University urn:nbn:nl:ui:27-19185, Maastricht University.
  14. Layne-Farrar, Anne, 2005. "Defining Software Patents: A Research Field Guide," Working paper 143, Regulation2point0.
  15. Zvi Griliches & Bronwyn H. Hall & Ariel Pakes, 1991. "R&D, Patents, and Market Value Revisited: Is There Evidence of A SecondTechnological Opportunity Related Factor?," NBER Working Papers 2624, National Bureau of Economic Research, Inc.
  16. Bronwyn H. Hall & Adam Jaffe & Manuel Trajtenberg, 2005. "Market Value and Patent Citations," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 16-38, Spring.
  17. Griliches, Zvi, 1981. "Market value, R&D, and patents," Economics Letters, Elsevier, vol. 7(2), pages 183-187.
  18. Bruno Van Pottelsberghe & Dominique Guellec, 2000. "Applications grants and the value of patents," ULB Institutional Repository 2013/6229, ULB -- Universite Libre de Bruxelles.
  19. repec:fth:harver:1473 is not listed on IDEAS
  20. Teece, David J., 1993. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," Research Policy, Elsevier, vol. 22(2), pages 112-113, April.
  21. Dietmar Harhoff & Francis Narin & F. M. Scherer & Katrin Vopel, 1999. "Citation Frequency And The Value Of Patented Inventions," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 511-515, August.
  22. Jean O. Lanjouw & Mark Schankerman, 2004. "Patent Quality and Research Productivity: Measuring Innovation with Multiple Indicators," Economic Journal, Royal Economic Society, vol. 114(495), pages 441-465, 04.
  23. Fabio Montobbio & E. Bacchiocchi, 2004. "EPO vs. USPTO Citation Lags," KITeS Working Papers 161, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Sep 2004.
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