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Invention value, inventive capability and the large firm advantage

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  • Arora, Ashish
  • Cohen, Wesley
  • Lee, Honggi
  • Sebastian, Divya

Abstract

Do large firms produce more valuable inventions, and if so, why? After confirming that large firms indeed produce more valuable inventions, we consider two possible sources: a superior ability to invent, or a superior ability to extract value from their inventions. We develop a simple model that discriminates between the two explanations. Using a sample of 2,786 public corporations, and measures of both patent quality and patent value, we find that, while average invention value rises with size, average invention quality declines, suggesting, per our model, that the large firm advantage is not due to superior inventive capability, but due to the superior ability to extract value. We provide evidence suggesting that this superior ability to extract value is due to the greater commercialization capabilities of larger firms.

Suggested Citation

  • Arora, Ashish & Cohen, Wesley & Lee, Honggi & Sebastian, Divya, 2023. "Invention value, inventive capability and the large firm advantage," Research Policy, Elsevier, vol. 52(1).
    • Handle: RePEc:eee:respol:v:52:y:2023:i:1:s0048733322001718
    DOI: 10.1016/j.respol.2022.104650
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    Cited by:

    1. Wang, Fang, 2024. "Does the recombination of distant scientific knowledge generate valuable inventions? An analysis of pharmaceutical patents," Technovation, Elsevier, vol. 130(C).
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    3. Fabian Gaessler & Dietmar Harhoff & Stefan Sorg & Georg von Graevenitz, 2024. "Patents, Freedom to Operate, and Follow-on Innovation: Evidence from Post-Grant Opposition," Rationality and Competition Discussion Paper Series 494, CRC TRR 190 Rationality and Competition.
    4. Lee, Honggi, 2023. "The heterogeneous effects of patent scope on licensing propensity," Research Policy, Elsevier, vol. 52(3).
    5. Lan, Lan & Zhou, Zhifang, 2024. "Complementary or substitutive effects? The duality of digitalization and ESG on firm's innovation," Technology in Society, Elsevier, vol. 77(C).
    6. Kox, Henk L.M., 2023. "Testing an extended knowledge-capital model of foreign direct investment," MPRA Paper 117266, University Library of Munich, Germany.
    7. Papageorgiadis, Nikolaos & Procopiou, Andreas & Sofka, Wolfgang, 2023. "Unintended consequences of outcome based compensation – How CEO bonuses, stocks and stock options affect their firms' patent litigation," Research Policy, Elsevier, vol. 52(8).
    8. Castaneda, Monica & Herrera, Milton M. & Méndez-Morales, Alberto, 2023. "A simulation-based approach for assessing the innovation barriers in the manufacturing firms," Technology in Society, Elsevier, vol. 75(C).
    9. Michele Battisti & Filippo Belloc & Massimo Del Gatto, 2023. "COVID-19, Innovative Firms and Resilience," WIPO Economic Research Working Papers 73, World Intellectual Property Organization - Economics and Statistics Division.

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    More about this item

    Keywords

    Invention value; Invention quality; Appropriability; Inventive capability; Markets for technology; Firm size;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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