Market Valuation of Patent Characteristics

Abstract

Measuring the returns to R&D has been an endeavor pursued by economists with vast interest in an effort to learn more about the characteristics of successful R&D. This paper empirically measures the market valuation of firms using patent statistics as a proxy for the success of R&D. It finds that self-citation and generality patent measures are largely insignificant likely due to a tendency for newer patents to be measured incorrectly. It also attempts a measure of companies’ reputation for innovation for valuation and proposes a new method of quantification. Lastly, it finds that the market valuation of R&D investment is potentially myopic during years of stock market downturns.