Corporate Innovation and Future Earnings: Does Early Patent Disclosure Matter?

Posted: 9 Apr 2019 Last revised: 1 Aug 2019

See all articles by James Plecnik

James Plecnik

Loyola Marymount University - College of Business Administration

Liu Yang

Wichita State University

Joseph Zhang

University of Memphis

Date Written: July 06, 2019

Abstract

This study investigates how technology disclosure through patent filings affects the value of corporate innovation. We first examine how different proxies of firm innovation relate to future earnings, and find that patent citations and originality contribute more strongly to future earnings than patent counts. We next study how early technology disclosure affects the relationship between innovation outputs and future earnings by exploiting the regulatory shock caused by the implementation of the American Inventors Protection Act (AIPA). We find that the accelerated disclosure of patents required by the AIPA strengthens the contributions of patent originality and citations to future earnings ― but does not strengthen the contribution of patent counts. The asymmetric effect of patent disclosure on the value of innovation implies that the AIPA helps protect and promote high-quality innovation. We further support this conjecture by demonstrating that firms with high-quality innovation are more likely to voluntarily disclose their innovations before the AIPA’s implementation.

Keywords: Patent; Innovation; Disclosure; American Inventors Protection Act

JEL Classification: D23; O34; M40

Suggested Citation

Plecnik, James and Yang, Liu and Zhang, Joseph, Corporate Innovation and Future Earnings: Does Early Patent Disclosure Matter? (July 06, 2019). Available at SSRN: https://ssrn.com/abstract=3353813

James Plecnik

Loyola Marymount University - College of Business Administration ( email )

Los Angeles, CA 90045
United States

Liu Yang (Contact Author)

Wichita State University ( email )

United States

Joseph Zhang

University of Memphis ( email )

FAB 200
School of Accountancy
Memphis, TN Tennessee 38152
United States

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