IDEAS home Printed from https://ideas.repec.org/a/eee/respol/v39y2010i2p214-228.html
   My bibliography  Save this article

Patents and the survival of Internet-related IPOs

Author

Listed:
  • Wagner, S.
  • Cockburn, I.

Abstract

We examine the effect of patenting on the survival prospects of 356 Internet-related firms that made an initial public offering on the NASDAQ at the height of the stock market bubble of the late 1990s. By March 2005, almost 2/3 of these firms had delisted from the exchange. Changes in the legal environment in the US in the 1990s made it much easier to obtain patents on software, and ultimately, on business methods, though less than 1/2 of the firms in our sample obtained, or attempted to obtain, patents. For those that did, we hypothesize that patents conferred competitive advantages that translate into higher probability of survival, though they may also simply be a signal of firm quality. Controlling for other determinants of firm survival, patenting is positively associated with survival. Quite different processes appear to govern exit via acquisition compared to exit via delisting from the exchange due to business failure. Firms that applied for more patents were less likely to be acquired, though if they obtain unusually highly cited patents they may be a more attractive acquisition target. These findings do generally not hold true for "business method" patents, which do not appear to confer a survival advantage.

Suggested Citation

  • Wagner, S. & Cockburn, I., 2010. "Patents and the survival of Internet-related IPOs," Research Policy, Elsevier, vol. 39(2), pages 214-228, March.
  • Handle: RePEc:eee:respol:v:39:y:2010:i:2:p:214-228
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0048-7333(09)00218-2
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lanjouw, Jean O & Schankerman, Mark, 2001. "Characteristics of Patent Litigation: A Window on Competition," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 129-151, Spring.
    2. Martha A. Schary, 1991. "The Probability of Exit," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 339-353, Autumn.
    3. Tjalling van der Goot & Noud van Giersbergen & Michiel Botman, 2009. "What determines the survival of internet IPOs?," Applied Economics, Taylor & Francis Journals, vol. 41(5), pages 547-561.
    4. Michael Noel & Mark Schankerman, 2013. "Strategic Patenting and Software Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 481-520, September.
    5. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
    6. Mata, Jose & Portugal, Pedro & Guimaraes, Paulo, 1995. "The survival of new plants: Start-up conditions and post-entry evolution," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 459-481, December.
    7. Hall, Bronwyn H., 2003. "Business Method Patents, Innovation, and Policy," Department of Economics, Working Paper Series qt2n24f63d, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    8. Hunter, Starling David, III, 2003. "Have Business Method Patents Gotten a Bum Rap? Some Empirical Evidence," Working papers 4326-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    9. Utterback, James M. & Suarez, Fernando F., 1993. "Innovation, competition, and industry structure," Research Policy, Elsevier, vol. 22(1), pages 1-21, February.
    10. Narendranathan, Wiji & Stewart, Mark B, 1991. "Simple Methods for Testing for the Proportionality of Cause-Specific Hazards in Competing Risk Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(3), pages 331-340, August.
    11. James Bessen & Robert M. Hunt, 2007. "An Empirical Look at Software Patents," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(1), pages 157-189, March.
    12. Hall, Bronwyn H. & MacGarvie, Megan, 2010. "The private value of software patents," Research Policy, Elsevier, vol. 39(7), pages 994-1009, September.
    13. Josh Lerner, 2002. "Where Does "State Street" Lead? A First Look at Finance Patents, 1971 to 2000," Journal of Finance, American Finance Association, vol. 57(2), pages 901-930, April.
    14. Stefan Wagner, 2008. "Business Method Patents In Europe And Their Strategic Use—Evidence From Franking Device Manufacturers," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 17(3), pages 173-194.
    15. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    16. Thomas F. Cooley & Vincenzo Quadrini, 2001. "Financial Markets and Firm Dynamics," American Economic Review, American Economic Association, vol. 91(5), pages 1286-1310, December.
    17. Joshua S. Gans & David H. Hsu & Scott Stern, 2002. "When Does Start-Up Innovation Spur the Gale of Creative Destruction?," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 571-586, Winter.
    18. Jyrki Ali-Yrkko & Ari Hyytinen & Mika Pajarinen, 2005. "Does patenting increase the probability of being acquired? Evidence from cross-border and domestic acquisitions," Applied Financial Economics, Taylor & Francis Journals, vol. 15(14), pages 1007-1017.
    19. Richard E. Caves, 1998. "Industrial Organization and New Findings on the Turnover and Mobility of Firms," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 1947-1982, December.
    20. Agarwal, Rajshree & Gort, Michael, 1996. "The Evolution of Markets and Entry, Exit and Survival of Firms," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 489-498, August.
    21. Rajshree Agarwal & Michael Gort, 2002. "Firm and Product Life Cycles and Firm Survival," American Economic Review, American Economic Association, vol. 92(2), pages 184-190, May.
    22. Fama, Eugene F. & French, Kenneth R., 2004. "New lists: Fundamentals and survival rates," Journal of Financial Economics, Elsevier, vol. 73(2), pages 229-269, August.
    23. Bharat A. Jain & Omesh Kini, 2000. "Does the Presence of Venture Capitalists Improve the Survival Profile of IPO Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(9&10), pages 1139-1183.
    24. 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.
    25. David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011468.
    26. Harhoff, Dietmar & Scherer, Frederic M. & Vopel, Katrin, 2003. "Citations, family size, opposition and the value of patent rights," Research Policy, Elsevier, vol. 32(8), pages 1343-1363, September.
    27. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
    28. Honjo, Yuji, 2000. "Business failure of new firms: an empirical analysis using a multiplicative hazards model," International Journal of Industrial Organization, Elsevier, vol. 18(4), pages 557-574, May.
    29. Iain M. Cockburn & Megan J. MacGarvie, 2011. "Entry and Patenting in the Software Industry," Management Science, INFORMS, vol. 57(5), pages 915-933, May.
    30. Lerner, Josh & Zhu, Feng, 2007. "What is the impact of software patent shifts? Evidence from Lotus v. Borland," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 511-529, June.
    31. Shumway, Tyler, 2001. "Forecasting Bankruptcy More Accurately: A Simple Hazard Model," The Journal of Business, University of Chicago Press, vol. 74(1), pages 101-124, January.
    32. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
    33. Audretsch, David B & Mahmood, Talat, 1995. "New Firm Survival: New Results Using a Hazard Function," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 97-103, February.
    34. Palepu, Krishna G., 1986. "Predicting takeover targets : A methodological and empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 8(1), pages 3-35, March.
    35. Seguin, P. J. & Smoller, M. M., 1997. "Share price and mortality: An empirical evaluation of newly listed Nasdaq stocks," Journal of Financial Economics, Elsevier, vol. 45(3), pages 333-363, September.
    36. Silviano Pérez & Amparo Llopis & Juan Llopis, 2004. "The Determinants of Survival of Spanish Manufacturing Firms," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 25(3), pages 251-273, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ugur, Mehmet & Trushin, Eshref & Solomon, Edna M. & Guidi, Francesco, 2015. "Inverted-U relationship between innovation and survival: evidence from firm-level UK data," Greenwich Papers in Political Economy 14073, University of Greenwich, Greenwich Political Economy Research Centre.
    2. Kim, Jungho & Lee, Chang-Yang, 2016. "Technological regimes and firm survival," Research Policy, Elsevier, vol. 45(1), pages 232-243.
    3. Marco Vivarelli, 2013. "Is entrepreneurship necessarily good? Microeconomic evidence from developed and developing countries," Industrial and Corporate Change, Oxford University Press, vol. 22(6), pages 1453-1495, December.
    4. Enrico Santarelli & Marco Vivarelli, 2007. "Entrepreneurship and the process of firms’ entry, survival and growth," Industrial and Corporate Change, Oxford University Press, vol. 16(3), pages 455-488, June.
    5. Paul H. Jensen & Elizabeth Webster & Hielke Buddelmeyer, 2008. "Innovation, Technological Conditions and New Firm Survival," The Economic Record, The Economic Society of Australia, vol. 84(267), pages 434-448, December.
    6. Colombo, Massimo G. & Delmastro, Marco & Grilli, Luca, 2004. "Entrepreneurs' human capital and the start-up size of new technology-based firms," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1183-1211, November.
    7. Francesco Quatraro & Marco Vivarelli, 2015. "Drivers of Entrepreneurship and Post-entry Performance of Newborn Firms in Developing Countries," World Bank Research Observer, World Bank Group, vol. 30(2), pages 277-305.
    8. María Jesús Abellán Madrid & Antonio García-Tabuenca & Cristina Suárez Gálvez, 2015. "R&D investments and firm survival across regions," Chapters, in: Charlie Karlsson & Urban Gråsjö & Sofia Wixe (ed.), Innovation and Entrepreneurship in the Global Economy, chapter 1, pages 21-43, Edward Elgar Publishing.
    9. Colombelli, Alessandra & Krafft, Jackie & Vivarelli, Marco, 2016. "New Firms and Post-Entry Performance: The Role of Innovation," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201602, University of Turin.
    10. Roberto Fontana & Lionel Nesta, 2009. "Product Innovation and Survival in a High-Tech Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 34(4), pages 287-306, June.
    11. Alessandra Colombelli & Jackie Krafft & Marco Vivarelli, 2016. "Entrepreneurship and Innovation: New Entries, Survival, Growth," GREDEG Working Papers 2016-04, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    12. Daniel Fackler & Claus Schnabel & Joachim Wagner, 2013. "Establishment exits in Germany: the role of size and age," Small Business Economics, Springer, vol. 41(3), pages 683-700, October.
    13. Alessandra Colombelli & Jackie Krafft & Marco Vivarelli, 2016. "To be born is not enough: the key role of innovative start-ups," Post-Print halshs-01248721, HAL.
    14. Şeker, Murat, 2012. "A structural model of firm and industry evolution: Evidence from Chile," Journal of Economic Dynamics and Control, Elsevier, vol. 36(6), pages 891-913.
    15. Ugur, Mehmet & Trushin, Eshref & Solomon, Edna, 2016. "Inverted-U relationship between R&D intensity and survival: Evidence on scale and complementarity effects in UK data," Research Policy, Elsevier, vol. 45(7), pages 1474-1492.
    16. D.B. Audretsch & L. Klomp & E. Santarelli & A.R. Thurik, 2004. "Gibrat's Law: Are the Services Different?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 24(3), pages 301-324, May.
    17. Marco Vivarelli, 2012. "Entrepreneurship and Post-Entry Performance: the Microeconomic Evidence," DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali dises1286, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    18. Renáta Kosová & Francine Lafontaine, 2010. "Survival And Growth In Retail And Service Industries: Evidence From Franchised Chains," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 542-578, September.
    19. Dimara, Efthalia & Skuras, Dimitris & Tsekouras, Kostas & Tzelepis, Dimitris, 2008. "Productive efficiency and firm exit in the food sector," Food Policy, Elsevier, vol. 33(2), pages 185-196, April.
    20. Harald Strotmann, 2002. "Determinanten des Überlebens von Neugründungen in der badenwürttembergischen Industrie. Eine empirische Survivalanalyse mit amtlichen Betriebsdaten," IAW Discussion Papers 06, Institut für Angewandte Wirtschaftsforschung (IAW).

    More about this item

    Keywords

    Business method patent Firm survival High tech start-ups;

    JEL classification:

    • L0 - Industrial Organization - - General
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:respol:v:39:y:2010:i:2:p:214-228. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/respol .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/respol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.