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Climate Patents and Financial Markets

Author

Listed:
  • Hege, Ulrich
  • Pouget, Sébastien
  • Zhang, Yifei

Abstract

We study the impact of climate patents on financial markets. Exploiting quasi-random variations in patent examiner leniency, we show that firms are rewarded with significant positive stock returns over a 12-month horizon when they receive fortuitous climate patent grants, compared with similarly innovative but unlucky firms. We ob-serve concomitant trends of reduced costs of capital, shareholder rotations towards environment-focused institutional investors and better environmental ratings. We do not observe similar reactions for other patents, including other green patents. We cor-roborate the distinctive nature of the market reaction to climate innovation by showing that it is amplified during periods of high attention to climate change, for firms with high climate exposure, and for first-time grants of climate patents. Random grants of climate patents do not produce improvements in the innovator’s operating perfor-mance or carbon emissions, but the underlying climate technologies do, suggesting that financial markets react rationally to the signal value of climate patent grants.

Suggested Citation

  • Hege, Ulrich & Pouget, Sébastien & Zhang, Yifei, 2023. "Climate Patents and Financial Markets," TSE Working Papers 23-1400, Toulouse School of Economics (TSE), revised Dec 2024.
    • Handle: RePEc:tse:wpaper:127752
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    File URL: https://www.tse-fr.eu/sites/default/files/TSE/documents/doc/wp/2023/wp_tse_1400.pdf
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    References listed on IDEAS

    as
    1. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    2. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2022. "Dissecting green returns," Journal of Financial Economics, Elsevier, vol. 146(2), pages 403-424.
    3. Joan Farre‐Mensa & Deepak Hegde & Alexander Ljungqvist, 2020. "What Is a Patent Worth? Evidence from the U.S. Patent “Lottery”," Journal of Finance, American Finance Association, vol. 75(2), pages 639-682, April.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Kimura, Yosuke, 2024. "Market-based patent value of green transformation technologies," Finance Research Letters, Elsevier, vol. 68(C).
    2. Hege, Ulrich & Li, Kai & Zhang, Yifei, 2025. "Climate Innovation and Carbon Emissions: Evidence from Supply Chain Networks," TSE Working Papers 25-1608, Toulouse School of Economics (TSE).
    3. Borsuk, Marcin & Eugster, Nicolas & Klein, Paul-Olivier & Kowalewski, Oskar, 2024. "Family firms and carbon emissions," Journal of Corporate Finance, Elsevier, vol. 89(C).

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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • 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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