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Internal information quality and patent‐related innovation

Kelly Huang, Brent Lao and Gregory McPhee

Journal of Business Finance & Accounting, 2020, vol. 47, issue 3-4, 489-518

Abstract: This study investigates how the quality of information available within a firm affects patent‐related innovative activities. Relying on recent theoretical and empirical research, we use externally observable information attributes to proxy for the quality of internal information. Our empirical results indicate that firms with higher internal information quality generate more patents and patent citations. Cross‐sectional analyses show that this positive effect is greater when firms are susceptible to greater internal information frictions due to firm decentralization, short management team tenure, and long product development cycles. We also document that firms experience an increase in patents and patent citations following an improvement of internal information quality proxied by internal control weakness remediation. Overall, our results suggest that the positive relation between internal information quality and task performance extends to patent‐related innovation, a non‐routine type of task that may rely on information originating from sources other than firms’ formal internal information systems.

Date: 2020
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Journal of Business Finance & Accounting is currently edited by P. F. Pope, A. W. Stark and M. Walker

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