Software Patents and Firm Value: A Real Options Perspective on the Role of Innovation Orientation and Environmental Uncertainty

Sunghun Chung (), Animesh Animesh (), Kunsoo Han () and Alain Pinsonneault ()
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Sunghun Chung: Leavey School of Business, Santa Clara University, Santa Clara, California 95053
Animesh Animesh: Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada
Kunsoo Han: Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada
Alain Pinsonneault: Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada

Information Systems Research, 2019, vol. 30, issue 3, 1073-1097

Abstract: Although software patents have been growing steadily since 1996, when the restrictions on the patentability of software were eliminated, their value and impacts on the firm’s profits remain unclear and ambiguous. Drawing on the real options theory and the literature on exploration and exploitation, we develop a novel theoretical framework to assess the value of software patents. Moreover, we examine the impact of contextual factors related to the nature of innovation underlying firms’ patent portfolios (exploitative versus explorative) and the environmental uncertainty (competitiveness and dynamism) on the value of software patents. Specifically, we examine the interaction effect of a firm’s software patent stock and its innovation orientation on firm value in markets exhibiting different levels of environmental uncertainty. Based on a large-panel data set consisting of 602 U.S. firms, our results indicate that a software patent portfolio having higher levels of explorative orientation is associated with a higher firm value (as measured by Tobin’s q ) in environments exhibiting low dynamism and high competitiveness. By contrast, a software patent portfolio with higher levels of exploitative orientation is associated with a higher firm value in environments with high dynamism and low competitiveness. We discuss the implications for research and practice.

Keywords: software patents; real options theory; innovation orientation; environmental uncertainty; firm value; exploration; exploitation (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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