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The Strategic Effects of Trademark Protection

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  • Davidson Heath
  • Christopher Mace

Abstract

We study the effects of trademark protection on firms’ profits and strategy using the 1996 Federal Trademark Dilution Act, which granted additional legal protection to selected trademarks. We find that the FTDA raised treated firms’ operating profits and was followed by a spike in trademark lawsuits and lower entry and exit in affected product markets. Treated firms reduced R&D spending, produced fewer patents and new products, and recalled a higher number of unsafe products. Our results suggest that stronger trademark protection negatively affected innovation and product quality.Received October 20, 2017; editorial decision May 16, 2019 by Editor Francesca Cornelli. Authors have furnished code/data and an Internet Appendix, which are available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Davidson Heath & Christopher Mace, 2020. "The Strategic Effects of Trademark Protection," The Review of Financial Studies, Society for Financial Studies, vol. 33(4), pages 1848-1877.
    • Handle: RePEc:oup:rfinst:v:33:y:2020:i:4:p:1848-1877.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhz084
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    Citations

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    Cited by:

    1. Bin Yang & Tao Yuan, 2022. "Trademark and IPO underpricing," Financial Management, Financial Management Association International, vol. 51(1), pages 271-296, March.
    2. Yang, Bin & An, Zhe & Gao, Xin & Li, Donghui, 2023. "Trademarks and the cost of equity capital," Journal of Corporate Finance, Elsevier, vol. 83(C).
    3. Carolina Castaldi & Sandro Mendonca, 2021. "Regions and trademarks. Research opportunities and policy insights from leveraging trademarks in regional innovation studies," Papers in Evolutionary Economic Geography (PEEG) 2138, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Dec 2021.
    4. Po-Hsuan Hsu & Dongmei Li & Qin Li & Siew Hong Teoh & Kevin Tseng, 2022. "Valuation of New Trademarks," Management Science, INFORMS, vol. 68(1), pages 257-279, January.
    5. Naveen Kumar & Liangfei Qiu & Subodha Kumar, 2022. "A Hashtag Is Worth a Thousand Words: An Empirical Investigation of Social Media Strategies in Trademarking Hashtags," Information Systems Research, INFORMS, vol. 33(4), pages 1403-1427, December.
    6. Davidson Heath & Giorgo Sertsios, 2022. "Profitability and Financial Leverage: Evidence from a Quasi-Natural Experiment," Management Science, INFORMS, vol. 68(11), pages 8386-8410, November.
    7. Carolina Castaldi, 2023. "Off the mark? What we (should) know about the bright and dark sides of corporate trademark practices," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 32(5), pages 1046-1062.
    8. Po‐Hsuan Hsu & Hai‐Ping Hui & Hsiao‐Hui Lee & Kevin Tseng, 2022. "Supply chain technology spillover, customer concentration, and product invention," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(2), pages 393-417, April.
    9. Agoraki, Maria-Eleni K. & Giaka, Maria & Konstantios, Dimitrios & Patsika, Victoria, 2023. "Firms’ sustainability, financial performance, and regulatory dynamics: Evidence from European firms," Journal of International Money and Finance, Elsevier, vol. 131(C).
    10. Emin Dinlersoz & Nathan Goldschlag & Mehmet Yorukoglu & Nikolas Zolas, 2023. "On The Role of Trademarks: From Micro Evidence to Macro Outcomes," Working Papers 23-16, Center for Economic Studies, U.S. Census Bureau.
    11. Gabriel Marcuzzo Canto Cavalheiro & Mariana Brandao Cavalheiro, 2024. "Cluster Analysis of the Internationalization of Unicorns from Latin America Based on Trademark Registrations," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(1), pages 1650-1665, March.
    12. Kooli, Maher & Zhang, Aoran & Zhao, Yunfei, 2022. "How IPO firms' product innovation strategy affects the likelihood of post-IPO acquisitions?," Journal of Corporate Finance, Elsevier, vol. 72(C).
    13. Sertsios, Giorgo, 2020. "Corporate finance, industrial organization, and organizational economics," Journal of Corporate Finance, Elsevier, vol. 64(C).
    14. David C. Mauer & Natalia Villatoro & Yilei Zhang, 2022. "Brand equity and corporate debt structure," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(7-8), pages 1077-1112, July.
    15. Chen, I-Ju & Hsu, Po-Hsuan & Wang, Yanzhi, 2022. "Staggered boards and product innovations: Evidence from Massachusetts State Bill HB 5640," Research Policy, Elsevier, vol. 51(4).

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