 Patents Do Not Measure Innovation SuccessDavid M. Reeb and Wanli Zhao Critical Finance Review, 2020, vol. 9, issue 1-2, 157-199 Abstract: We find that a company’s patent filings and citations are not good measures of R&D success or failure, even when compared to firms in the same industry. Instead, our analysis reveals that patent counts reflect the firm’s mix of product and process innovation. Intuitively, competitor infringements of process innovation are difficult to detect, suggesting these innovations are better protected via trade secret than patents. We document that non-patenting firms frequently announce valuable new products, even though they emphasize process over product innovation. Insider trading in non-patenting firms generates positive excess returns, while such activity in patenting firms yields ordinary returns. The Uniform Trade Secrets Act induced firms to switch from patenting to non-patenting, leading to lower analysts and institutional following. Financial intermediaries potentially influence the disclosure of innovation rather than research and development success (Aghion et al., 2013; Bena et al., 2017). Overall, our tests indicate that patents and citations signify the nature of innovation rather R&D success. Keywords: Product innovation; Process innovation; Patents; Trade secrets; Productannouncements; Insider trading; Disclosure choice; Financing innovation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:now:jnlcfr:104.00000087 Access Statistics for this article More articles in Critical Finance Review from now publishers |
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