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Corporate Patenting, Customer Capital, and Financial Market Outcomes

Published online by Cambridge University Press:  20 February 2023

Mine Ertugrul ,
Karthik Krishnan ,
Bo Xu  and
Qianqian Yu
Mine Ertugrul*
Affiliation:
University of Massachusetts Boston College of Management
Karthik Krishnan
Affiliation:
Northeastern University D’Amore-McKim School of Business k.krishnan@northeastern.edu
Bo Xu
Affiliation:
Harbin Institute of Technology (Shenzhen) School of Economics and Management boxu@hit.edu.cn
Qianqian Yu
Affiliation:
Lehigh University College of Business qiy617@lehigh.edu
*
mine.ertugrul@umb.edu (corresponding author)
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Abstract

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We study how patenting enhances customer capital and creates financial value in a product market characterized by information asymmetry between firm insiders and customers. We find that firms with more and higher quality patents develop greater customer capital, as measured by more positive customer perceptions of product novelty and quality. To establish causality, we exploit the exogenous variation in the random assignment of patent examiners to review applications and use the average examiner leniency as an instrument for patent grants. Our mediation analysis documents a positive impact of patenting on firm performance and financial market valuation through enhanced customer capital.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 34
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee and Mara Faccio (the editor) for valuable comments that helped to greatly improve this article. We are grateful for comments and suggestions from Thomas Chemmanur, Uliana Filatova, Avi Goldfarb, Po-Hsuan Hsu, Ahmet Kurt, Xinjie Ma, Debarshi Nandy, and conference and seminar participants at the 2022 AMA Summer Academic Conference, 2021 INFORMS Marketing Science Conference, 2021 SFA Annual Meeting, 2018 EFA Annual Meeting, 2017 FMA Annual Meeting, 2016 Northeastern University Center for Emerging Markets seminar, and the 2018 University of Massachusetts Boston finance seminar. Bo Xu acknowledges the funding support from HITSZ Research Startup Fund (GA45001031), Shenzhen Key Research Base of Humanities and Social Sciences (KP191001), and 2020 “13th Five-Year” Planning General Project of Philosophy and Social Science of Guangdong Province (GD20CYJ13). Any errors and omissions are the responsibility of the authors.

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