IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0334970.html

The impact of patent activity on idiosyncratic volatility in U.S. pharmaceutical companies

Author

Listed:
  • Emre Atilgan
  • Fethiye Burcu Türkmen Ceylan
  • Ömer Tuğsal Doruk
  • Hasan Murat Ertuğrul
  • Ahmet Yasir Barak

Abstract

This study examines the impact of patent activity on the idiosyncratic volatility (IVOL) of U.S. pharmaceutical companies, addressing a critical gap in the literature on the relationship between innovation and firm-specific risk. Using panel data from Thomson Reuters/Refinitiv covering 2,910 firms over 2005−2024, we employ the Fama-French 5-factor model to isolate firm-specific volatility and analyze how patent events and pharmaceutical development activities affect stock price risk. Our findings reveal a complex relationship between innovation and volatility that varies by development stage. While patent activity overall reduces idiosyncratic volatility, early and mid-stage development projects (Phase I and II) initially increase firm-specific risk, reflecting inherent uncertainties in drug development. Conversely, newly launched products significantly reduce volatility, indicating that risk mitigation occurs primarily at commercialization. These relationships remain robust during crisis periods, including the 2008−09 financial crisis and COVID-19 pandemic. The results provide valuable insights for investors seeking to assess pharmaceutical investment risks, managers optimizing innovation portfolios, and policymakers designing intellectual property frameworks. The study’s focus on the U.S. market and reliance on patent counts rather than quality measures suggest important avenues for future research across different regulatory environments and innovation metrics.

Suggested Citation

  • Emre Atilgan & Fethiye Burcu Türkmen Ceylan & Ömer Tuğsal Doruk & Hasan Murat Ertuğrul & Ahmet Yasir Barak, 2025. "The impact of patent activity on idiosyncratic volatility in U.S. pharmaceutical companies," PLOS ONE, Public Library of Science, vol. 20(10), pages 1-21, October.
    • Handle: RePEc:plo:pone00:0334970
    DOI: 10.1371/journal.pone.0334970
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0334970
    Download Restriction: no
    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0334970&type=printable
    Download Restriction: no
    File URL: https://libkey.io/10.1371/journal.pone.0334970?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Hochberg, Yael V. & Serrano, Carlos J. & Ziedonis, Rosemarie H., 2018. "Patent collateral, investor commitment, and the market for venture lending," Journal of Financial Economics, Elsevier, vol. 130(1), pages 74-94.
    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. Figueroa, Nicolás & Serrano, Carlos J., 2019. "Patent trading flows of small and large firms," Research Policy, Elsevier, vol. 48(7), pages 1601-1616.
    2. Hegde, Shantaram P. & Mishra, Dev R., 2023. "Patented knowledge capital and implied equity risk premium," Journal of Banking & Finance, Elsevier, vol. 148(C).
    3. Jiang, Cuiqing & Zhou, Yiru & Chen, Bo, 2023. "Mining semantic features in patent text for financial distress prediction," Technological Forecasting and Social Change, Elsevier, vol. 190(C).
    4. Yongmei Fang, 2024. "Enterprise Innovation, Government Subsidies, and Bank Loans: an Empirical Analysis from the Science and Technology Innovation Board of China," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(4), pages 19104-19126, December.
    5. Kang, Youngho & Kim, Ryoonhee & Whang, Unjung, 2023. "International knowledge transfers and capital structure of multinational affiliates: Evidence from expatriate managers as the transfer agents," Journal of Multinational Financial Management, Elsevier, vol. 68(C).
    6. Kim, Jinhwan & Valentine, Kristen, 2023. "Public firm disclosures and the market for innovation," Journal of Accounting and Economics, Elsevier, vol. 76(1).
    7. Ljungqvist, Alexander & Farre-Mensa, Joan & Hegde, Deepak, 2016. "The Bright Side of Patents," CEPR Discussion Papers 11091, Centre for Economic Policy Research.
    8. Billington, Stephen D. & Colvin, Christopher L. & Coyle, Christopher, 2025. "Financing Innovation: The Role of Patent Examination," CAGE Online Working Paper Series 767, Competitive Advantage in the Global Economy (CAGE).
    9. Lööf, Hans & Perez, Luis & Baum, Christopher F, 2018. "Directed Technical Change in Clean Energy: Evidence from the Solar Industry," Working Paper Series in Economics and Institutions of Innovation 470, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    10. Duan, Ran, 2023. "Patent trolls and capital structure decisions in high-tech firms," Journal of Banking & Finance, Elsevier, vol. 155(C).
    11. Alberto Galasso & Mark Schankerman, 2015. "Patent Rights, Innovation and Firm Exit," NBER Working Papers 21769, National Bureau of Economic Research, Inc.
    12. Mihaela Diaconu, 2016. "Determinants of Financing Decisions in Innovative Firms: A Review on Theoretical Backgrounds and Empirical Evidence," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 198-203, February.
    13. Zhiyuan Chen & Minjie Deng & Min Fang, 2022. "Financing Innovation with Innovation," Working Papers 002004, University of Florida, Department of Economics.
    14. Nick F. D. Huberts & Xingang Wen & Herbert Dawid & Kuno J. M. Huisman & Peter M. Kort, 2025. "Double Marginalization Because of External Financing: Capacity Investment Under Uncertainty," Management Science, INFORMS, vol. 71(5), pages 3749-3767, May.
    15. Filippo Mezzanotti, 2021. "Roadblock to Innovation: The Role of Patent Litigation in Corporate R&D," Management Science, INFORMS, vol. 67(12), pages 7362-7390, December.
    16. Chau Le & Bach Nguyen & Vinh Vo, 2024. "Do intangible assets help SMEs in underdeveloped markets gain access to external finance?—the case of Vietnam," Small Business Economics, Springer, vol. 62(2), pages 833-855, February.
    17. Guo, Yanan & Wang, Hengyan & Wu, Yunyun, 2025. "Analysis of corporate financialization behavior and its influencing factors under external demand shocks," Finance Research Letters, Elsevier, vol. 77(C).
    18. Liu, Zhao & Zhu, Huawei, 2025. "Impacts of patent pledge financing on corporate investment: Evidence from a quasi-natural experiment in China," Pacific-Basin Finance Journal, Elsevier, vol. 89(C).
    19. Gonzalez-Uribe, Juanita, 2020. "Exchanges of innovation resources inside venture capital portfolios," LSE Research Online Documents on Economics 100924, London School of Economics and Political Science, LSE Library.
    20. Sudheer Chava & Vikram Nanda & Steven Chong Xiao, 2017. "Lending to Innovative Firms," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 6(2), pages 234-289.

    More about this item

    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:plo:pone00:0334970. See general information about how to correct material in RePEc.

    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: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.