General Purpose and Focused Invention, Market Value, and Productivity

Year 2024, Volume: 11 Issue: 1, 80 - 100, 28.03.2024

Burak Dindaroğlu

https://doi.org/10.54287/gujsa.1357879

Abstract

We study returns to general purpose and focused invention at the firm level for a panel of manufacturing firms in the U.S. for the period 1976-1995, by studying their relationships with market value and Total Factor Productivity. We construct stocks of patents that lie at the two relevant tails of the distribution of the generality index (Trajtenberg et al., 1997; Henderson et al, 1998) to measure general purpose and focused invention at the firm level. In line with expectations, there is a market value premium to focused invention, and a productivity premium to general purpose invention. Estimates for the value of focus indicate that moving a single patent from the upper tail of the generality distribution to the lower tail would increase market value by .24×q million 1992 dollars on average, where q is Tobin’s q. The firm with the average general patent stock would gain 6.7×q million in market value if all its patents at the highest quartile of the generality distribution were moved to the lowest. In terms of the value of general purposeness, moving all its focused patents to the general category increases Total Factor Productivity by 2.3% to 2.8%, and five-year productivity growth by 3.9% to 5.2%, for the average firm. A potential implication is that corporate basic research is associated with significant long-term benefits in terms of productivity growth.

Keywords

General Purpose Technologies, Market Value, Total Factor Productivity, Patents, Intellectual Property

References

• Akcigit, U., Hanley, D., & Serrano-Velarde, D. (2021). Back to Basics: Basic Research Spillovers, Innovation Policy, and Growth. The Review of Economic Studies, 88(1), 1–43. https://doi.org/10.1093/restud/rdaa061
• Arellano, M., & Bond, D. (1991) Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. Review of Economic Studies, 58(2), 277-297. https://doi.org/10.2307/2297968
• Arora, A., Belenzon, S., Patacconi, A. (2018). The decline of science in corporate R&D. Strategic Management Journal, 39(1), 1-266. https://doi.org/10.1002/smj.2693
• Arora, A., Belenzon, S., & Sheer. L. (2021). Knowledge spillovers and corporate investment in scientic research. American Economic Review, 111(3), 871-898. https://doi.org/10.1257/aer.20171742
• Arora, A., Belenzon, S., Dionisi, B. (2023). First-mover advantage and the private value of public science. Research Policy, 52, 104867. https://doi.org/10.1016/j.respol.2023.104867
• Barirani, A., Beaudry, C., & Agard, N. (2015). Distant recombination and the creation of basic inventions: An analysis of the diffusion of public and private sector nanotechnology patents in Canada. Technovation, 36-37, 39-52. https://doi.org/10.1016/j.technovation.2014.10.002
• Bartelsman, E., Haltiwanger, J., & Scarpetta, S. (2013). Cross-Country Differences in Productivity: The Role of Allocation and Selection. American Economic Review, 103(1), 305-334. https://doi.org/10.1257/aer.103.1.305
• Belenzon, S. (2012). Cumulative Innovation and Market Value: Evidence from Patent Citations. Economic Journal, 122, 265-285. https://doi.org/10.1111/j.1468-0297.2011.02470.x
• Bessen, J. (2009). NBER PDP Project User Documentation: Matching Patent Data to Compustat Firms. Unpublished manuscript.
• Bloom, N., Schankerman, M., & Reenen, J.V. (2013). Identifying Technology Spillovers and Product Market Rivalry. Econometrica, 81(4), 1347-1393. https://doi.org/10.3982/ecta9466
• Blundell, R., Griffith, R., & Reenen, J.V. (1999). Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms. Review of Economic Studies, 66(3), 529-554. https://doi.org/10.1111/1467-937x.00097
• Blundell R., & Bond, S. (2000). GMM Estimation with Persistent Panel Data: An Application to Production Functions. Econometric Reviews, 19(3), 321-340. https://doi.org/10.1080/07474930008800475
• Bolívar-Ramos, M.T. (2023). The impact of corporate science on environmental innovations: the role of universities and research institutions. R&D Management, 53(3), 503-523. https://doi.org/10.1111/radm.12574
• Camerani, R., Rotolo, E. (2023). Is corporate basic science growing or declining? In: 27th International Conference on Science, Technology and Innovation Indicators (STI 2023). https://doi.org/10.55835/6442bcd51194fc7a73b429f5
• Ceccagnoli, M., Lee, Y-N., Walsh, J.P. (2024). Reaching beyond low-hanging fruit: Basic research and innovativeness. Research Policy, 53, 104912. https://doi.org/10.1016/j.respol.2023.104912
• Chen, X., Mao, J., Ma, Y., Li, G. (2024). The knowledge linkage between science and technology influences corporate technological innovation: Evidence from scientific publications and patents. Technological Forecasting and Social Change, 198, 122985. https://doi.org/10.1016/j.techfore.2023.122985
• Choi, J-U., Lee, C-Y. (2022). The differential effects of basic research on firm R&D productivity: The conditioning role of technological diversification. Technovation, 118, 102559. https://doi.org/10.1016/j.technovation.2022.102559
• Coad, A., Segarra-Blasco, A., & Teruel, M. (2021), A bit of basic, a bit of applied? R&D strategies and firm performance. Journal of Technology Transfer, 46, 1758-1783. https://doi.org/10.1007/s10961-020-09826-1
• Cockburn, I., & Griliches, Z. (1987). Industry Effects and Appropriability Measures in Stock Market’s Valuation of R&D and Patents. NBER Working Paper No. 2465. https://doi.org/10.3386/w2465
• Crass, D., & Peters, B. (2014). Intangible Assets and Firm-Level Productivity. ZEW Discussion Paper No.14-120. https://doi.org/10.2139/ssrn.2562302
• Crépon, B., Duguet, E., & Mairesse, J. (1998). Research, Innovation, and Productivity: An Econometric Analysis at the Firm Level. Economics of Innovation and New Technology, 7(2), 115-158. https://doi.org/10.1080/10438599800000031
• Czarnitzki, D., & Thorwarth, S. (2012). Productivity effects of basic research in low-tech and high-tech industries. Research Policy, 41, 1555-1564. https://doi.org/10.1016/j.respol.2012.04.009
• Dean, T., Zhang, H., Xiao, Y. (2022). The role of complexity in the Valley of Death and radical innovation performance. Technovation, 109, 102160. https://doi.org/10.1016/j.technovation.2020.102160
• Dindaroglu, B. (2014). Scientific Labor Mobility, Market Value, and Knowledge Flows. MPRA Working Paper No. 88043.
• Doraszelski, U., & Jaumandreu, J. (2013). R&D and Productivity: Estimating Endogenous Productivity. Review of Economic Studies, 80, 1338-1383. https://doi.org/10.1093/restud/rdt011
• Ernst, H. (1998). Industrial research as a source of important patents. Research Policy, 27, 1-15. https://doi.org/10.1016/s0048-7333(97)00029-2
• Filippova, E. (2019). Empirical Evidence and Economic Implications of Blockchain as a General Purpose Technology. In: 2019 IEEE Technology & Engineering Management Conference (TEMSCON), Atlanta, GA (pp. 1-8). https://doi.org/10.1109/TEMSCON.2019.8813748
• Gómez-Baquero, F. (2009). Measuring the generality of nanotechnologies and its potential implications. In: 2009 Atlanta Conference on Science and Innovation Policy, Atlanta, GA (pp. 1-9). https://doi.org/10.1109/acsip.2009.5367858
• Greenhalgh, C., & Longland, M. (2005). Running to Stand Still? - The Value of R&D, Patents and Trade Marks in Innovating Manufacturing Firms. International Journal of the Economics of Business, 12(3), 307-328. https://doi.org/10.1080/13571510500299326
• Griffith, R., Huergo, E., Mairesse, & J., Peters, B. (2006). Innovation and Productivity Across Four European Countries. Oxford Review of Economic Policy, 22, 483-498. https://doi.org/10.1093/oxrep/grj028
• Griliches, Z. (1963). The Sources of Measured Productivity Growth: United States Agriculture, 1940-60. Journal of Political Economy, 71(4), 331-346. https://doi.org/10.1086/258782
• Griliches, Z. (1979). Issues in Assessing the Contribution of R&D to Productivity Growth. Bell Journal of Economics, 10(1), 92-116. https://doi.org/10.2307/3003321
• Griliches, Z. (1981). Market Value, R&D, and Patents. Economics Letters, 7, 181-187. https://doi.org/10.1016/0165-1765(87)90114-5
• Griliches, Z. (1986). Productivity, R and D, and Basic Research at the Firm Level in the 1970’s. NBER Working Paper No: 1547. https://doi.org/10.3386/w1547
• Griliches, Z. (1988). Productivity Puzzles and R & D: Another Nonexplanation. Journal of Economic Perspectives, 2(4), 9-21. https://doi.org/10.1257/jep.2.4.9
• Griliches, Z. (1998). Patent Statistics as Economic Indicators: A Surveyç In: Z. Griliches (Ed.), R&D, patents, and productivity. University of Chicago Press, Chicago, IL. 287-343. https://doi.org/10.7208/chicago/9780226308920.001.0001
• Guo, Y., Gao, P., & Cheng, D. (2022). The Effects of R&D and its Different Types on Firm Productivity: Evidence from China. International Journal of Innovation Management, 26(08), 2250065. https://doi.org/10.1142/s1363919622500657
• Jefferson, G.H., Huamao, B., Xiaojing, G. & Xiaoyun, Y. (2006). R&D Performance in Chinese industry. Economics of Innovation and New Technology, 15, 345-366. https://doi.org/10.1080/10438590500512851
• Hall, B.H. (2011). Innovation and Productivity. NBER Working Paper No. 17178. https://doi.org/10.3386/w17178
• Hall, B.H., & Oriani, R. (2006). Does the Market Value R&D Investments by European Firms? Evidence From a Panel of Manufacturing Firms in France, Germany, and Italy. International Journal of Industrial Organization, 24, 971-993. https://doi.org/10.1016/j.ijindorg.2005.12.001
• Hall, B.H., & Trajtenberg, M. (2004). Uncovering GPTS with Patent Data. NBER Working Paper No. 10901. https://doi.org/10.3386/w10901
• Hall, B.H., & Vopel, K. (1997). Innovation, Market Share, and Market Value. Unpublished manuscript.
• Hall, B.H., Jaffe, A., & Trajtenberg, M. (2001). The NBER Patent Citations Data File: Lessons, Insights and Methodological Tools. NBER Working Paper No.8498. https://doi.org/10.3386/w8498
• Hall, B.H., Jaffe, A., & Trajtenberg, M. (2005). Market value and patent citations. RAND Journal of Economics, 36(1), 16-38.
• Hall, B.H., Mairesse, J., & Mohnen, P. (2010). Measuring the Returns to R&D. In: Hall, B.H., & Rosenberg, N. (Eds.), Handbook of the Economics of Innovation, Vol. 2 (pp. 1033-1082). https://doi.org/10.1016/s0169-7218(10)02008-3
• Harhoff, D. (1998). R&D and productivity in German manufacturing firms. Economics of Innovation and New Technology, 6(1), 29-49. https://doi.org/10.1080/10438599800000012
• Henderson, R., Jaffe, A.B., & Trajtenberg, M. (1998). Universities as a Source of Commercial Technology: A Detailed Analysis of University Patenting. The Review of Economics and Statistics, 80(1),119-127. https://doi.org/10.1162/003465398557221
• Jaffe, A.B. (1986). Technological Opportunity and Spillovers of R&D: Evidence From Firms’ Patents, Profits, and Market Value. The American Economic Review, 76, 984-1001.
• Krieger, J.L., Pellens, M., Blind, K., Gruber, S., Schubert, T. (2021). Are firms withdrawing from basic research? An analysis of firm-level publication behaviour in Germany. Scientometrics, 126, 9677-9698. https://doi.org/10.1007/s11192-021-04147-y
• Krieger, J.L., Schnitzer, M., Watzinger, M. (2022). Standing on the shoulders of science. Harvard Business School Working Paper 21-128.
• Leten, B., Kelchtermans, S., & Belderbos, R. (2022). How does basic research improve innovation performance in the world’s major pharmaceutical firms? Industry and Innovation, 29(3), 396-424. https://doi.org/10.1080/13662716.2021.1997723
• Lichtenberg, F.R., & Siegel, D.S. (1991). The Impact of R&D Investment on Productivity-New Evidence Using Linked R&D-LRD Data. Economic Inquiry, 29, 203-228. https://doi.org/10.1111/j.1465-7295.1991.tb01267.x
• Link, A.N. (1981). Basic research and productivity increase in manufacturing: some additional evidence. American Economic Review, 71(5) 1111-1112.
• Lychagin, S., Pinske, J., Slade, M.E., & Reenen, J.V. (2016). Spillovers in Space: Does Geography Matter? The Journal of Industrial Economics, 64/2: 295-335. https://doi.org/10.1111/joie.12103
• Mairesse, J., & Sassenou, M. (1991). R&D and productivity: a survey of econometric studies at the firm level. NBER Working Paper No. 3666. https://doi.org/10.3386/w3666
• Martinelli, A., Mina, A., & Moggi, M. (2021). The enabling technologies of industry 4.0: examining the seeds of the fourth industrial revolution. Industrial and Corporate Change, 30(1), 161-188. https://doi.org/10.1093/icc/dtaa060
• Megna, P., & Klock, M. (1993). The Impact of Intangible Capital on Tobin’s q in the Semiconductor Industry. American Economic Review Papers and Proceedings, 83(2), 265-269.
• Moser, P., & Nicholas, T. (2004). Was Electricity a General Purpose Technology? Evidence from Historical Patent Citations. American Economic Review Papers and Proceedings, 94(2), 388-394. https://doi.org/10.1257/0002828041301407
• Mowery, D.C., & Ziedonis, A.A. (2002). Academic patent quality and quantity before and after the Bayh–Dole act in the United States. Research Policy, 31, 399-418. https://doi.org/10.1016/s0048-7333(01)00116-0
• Olley, G.S., & Pakes, A. (1996). The Dynamics of Productivity in the Telecommunications Industry. Econometrica, 64(6), 1263-1297. https://doi.org/10.2307/2171831
• Petralia, S. (2020). Mapping general purpose technologies with patent data. Research Policy, 49, 104013. https://doi.org/10.1016/j.respol.2020.104013
• Raiteri, E. (2018). A time to nourish? Evaluating the impact of public procurement on technological generality through patent data. Research Policy, 47, 936-952. https://doi.org/10.1016/j.respol.2018.02.017
• Rotolo, D., Camerani, R., Grassano, N., & Martin, B.R., (2020). Why do firms publish? A systematic literature review and a conceptual framework. Research Policy, 51, 104606. https://doi.org/10.1016/j.respol.2022.104606
• Sampat, B.N., Mowery, D.C., & Ziedonis, A.A. (2003). Changes in university patent quality after the Bayh–Dole act: a re-examination. International Journal of Industrial Organization, 21, 1371-1390. https://doi.org/10.1016/s0167-7187(03)00087-0
• Sandner, P.G., & Block, J. (2011). The market value of R&D, patents and trademarks. Research Policy, 40, 969-985. https://doi.org/10.1016/j.respol.2011.04.004
• Shvadron, D. (2023). Bread Upon the Waters: Corporate Science and the Benefits from Follow-On Public Research. Unpublished manuscript.
• Serrano, C.J. (2010). The dynamics of the transfer and the renewal of patents. RAND Journal of Economics, 41(4), 686-708. https://doi.org/10.1111/j.1756-2171.2010.00117.x
• Schmid, J., & Fajebe, A. (2019). Variation in patent impact by organization type: An investigation of government, university, and corporate patents. Science and Public Policy, 46(4), 589–598. https://doi.org/10.1093/scipol/scz010
• Trajtenberg, M., & Henderson, R. (1997). University versus Corporate Patents: A Window on the Basicness of Invention. Economics of Innovation and New Technology, 5(1), 19-50. https://doi.org/10.1080/10438599700000006
• Wen, K. (2023) Accelerating Efforts to Improve Policy System to Support Basic Research in Enterprises. Bulletin of Chinese Academy of Sciences. 38(4), Article 9. https://doi.org/10.16418/j.issn.1000-3045.20230220003
• Yang, R., Wu, Q., Xie, Y. (2023). Are scientific articles involving corporations associated with higher citations and views? an analysis of the top journals in business research? Scientometrics, 128, 5659-5685. https://doi.org/10.1007/s11192-023-04808-0
• Yasar, M., Raciborski, R., & Poi, B. (2008). Production function estimation in Stata using the Olley and Pakes method. The Stata Journal, 8(2), 221-231. https://doi.org/10.1177/1536867x0800800204
• Youtie, J., Iacopetta, M., & Graham, S. (2008). Assessing the Nature of Nanotechnology: Can We Uncover an Emerging General Purpose Technology. Journal of Technology Transfer, 33, 315-329. https://doi.org/10.1007/s10961-007-9030-6
• Zhao, Q., Luo, Q., Tao, Y. (2023a). The power of paper: Scientific disclosure and firm innovation. Finance Research Letters, 56, 104147. https://doi.org/10.1016/j.frl.2023.104147
• Zhao, Q., Luo, Q., Zhao, X., Yu, Y. (2023b). Corporate key labs: Breakthrough or White elephant? China Economic Review, 79, 101954. https://doi.org/10.1016/j.chieco.2023.101954