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Market Value and Patent Citations

Author

Listed:
  • Bronwyn H. Hall

    (University of California, Berkeley, NBER, IFS)

  • Adam Jaffe

    (Brandeis University, NBER)

  • Manuel Trajtenberg

    (Tel Aviv University, NBER, CEPR)

Abstract

We explore the usefulness of patent citations as a measure of the "importance" of a firm's patents, as indicated by the stock market valuation of the firm's intangible stock of knowledge. Using patents and citations for 1963--1995, we estimate Tobin's q equations on the ratios of R&D to assets stocks, patents to R&D, and citations to patents. We find that each ratio significantly affects market value, with an extra citation per patent boosting market value by 3%. Further findings indicate that "unpredictable" citations have a stronger effect than the predictable portion, and that self-citations are more valuable than external citations.

Suggested Citation

  • 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.
    • Handle: RePEc:rje:randje:v:36:y:2005:1:p:16-38
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    Keywords

    Search; Learning; Information and Knowledge Asset Pricing Information and Market Efficiency; Event Studies Financing Policy; Capital and Ownership Structure; financial ratios; value of firm Intellectual Property Rights: National and International Issues (patents; copyrights) Firm; Knowledge; Stock Market; Stocks;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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