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Do Patents Lead to an Increase in Firm Value? Evidence from Korea

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  • Lee, Jangwook

Abstract

Patents are widely used in the literature as a measure of firm-level innovation. It is regarded that patents improve a firm’s operational environment and ultimately increase the value of the firm. However, the relationship between patents and firm value in Korea is under-explored in the literature due to the difficulty of constructing datasets. This paper examines whether patents in Korea increase the market value of a firm. To do this, I exploit novel data on firm-level patents and financial information of all listed Korean companies during the period of 1993- 2015 and estimate the non-linear production-function type of Tobin’s q equations on R&D, patents, and citations. Surprisingly, I find that patents and citations are weakly associated with firm value, while R&D is strongly associated with an increase in firm value. These results direct imply that policymakers in Korea should enhance patenting incentives to encourage firms to innovate.

Suggested Citation

  • Lee, Jangwook, 2020. "Do Patents Lead to an Increase in Firm Value? Evidence from Korea," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 42(3), pages 33-52.
    • Handle: RePEc:zbw:kdijep:225229
    DOI: 10.23895/kdijep.2020.42.3.33
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    References listed on IDEAS

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    1. Juan Alcácer & Michelle Gittelman, 2006. "Patent Citations as a Measure of Knowledge Flows: The Influence of Examiner Citations," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 774-779, November.
    2. Rui Li & Tamy Chambers & Ying Ding & Guo Zhang & Liansheng Meng, 2014. "Patent citation analysis: Calculating science linkage based on citing motivation," Journal of the Association for Information Science & Technology, Association for Information Science & Technology, vol. 65(5), pages 1007-1017, May.
    3. Lee, Jihong & Lim, Hyunkyeong & Jeong, Daeyoung, 2018. "Fourth Industrial Revolution and Innovative Capacity of South Korea: Comparative Analysis of Major Industrial Nations with US Patent Data, 1976-2015 (in Korean)," Working Papers 2018-1, Economic Research Institute, Bank of Korea.
    4. Jihong Lee & Hyunkyeong Lim & Daeyoung Jeong, 2018. "Fourth Industrial Revolution and Innovative Capacity: Comparative Analysis of Major Industrial Nations with US Patent Data, 1976-2015 (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 24(3), pages 37-82, September.
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    Cited by:

    1. Sang-Lyul Ryu & Jayoun Won, 2022. "The Value Relevance of Operational Innovation: Insights from the Perspective of Firm Life Cycle," Sustainability, MDPI, vol. 14(4), pages 1-18, February.
    2. Ya-Fang Wang, 2022. "Audit Fees, Patent Litigation, and Long-Term Performance," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 15(1), pages 7-15, July.

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    More about this item

    Keywords

    Innovation; Firm Value; Tobin’s q; R&D; Patent;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • 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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