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Deleting Unreported Innovation

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  • Koh, Ping-Sheng
  • Reeb, David M.
  • Sojli, Elvira
  • Tham, Wing Wah
  • Wang, Wendun

Abstract

The absence of observable innovation data for a firm often leads us to exclude or classify these firms as non-innovators. We assess the reliability of six methods for dealing with unreported innovation using several different counterfactuals for firms without reported R&D or patents. These tests reveal that excluding firms without observable innovation or imputing them as zero innovators and including a dummy variable can lead to biased parameter estimates for observed innovation and other explanatory variables. Excluding firms without patents is especially problematic, leading to false-positive results in empirical tests. Our tests suggest using multiple imputation to handle unreported innovation.

Suggested Citation

  • Koh, Ping-Sheng & Reeb, David M. & Sojli, Elvira & Tham, Wing Wah & Wang, Wendun, 2022. "Deleting Unreported Innovation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 57(6), pages 2324-2354, September.
    • Handle: RePEc:cup:jfinqa:v:57:y:2022:i:6:p:2324-2354_8
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