The Strategic Value Of Patents To Chinese Firms

With the launch of national level innovation strategy,China is known as a great country in terms of patenting.Underlying the large number of patents,Chinese firms are engaging in more and more patent applications.As one of the most important way of innovation output,what is the strategic value of patent?This question is not new to the scholars,while studies on Chinese firms focus on discussing the relationship between patent activities and accounting performance.There is a lack of attention to other strategic use of patent,which constrain our understandings on patent value.Under this background,this study identifies three perspectives through which studies analyze the value of patent,then propose three sets of hypotheses to systematically evaluate the strategic value of patent.First,resource-based view(RBV)proposes patent is unique resource which could lead to competitive advantages,and better performance.Hence,this study proposes patent number is positively related to product market performance,as main effect.Further,this study proposes propose the moderating effect of firm level boundary condition(slack resource,top management team(TMT)shareholding,TMT compensation),and environment level boundary condition(industry competition intensity,provincial intellectual property protection).Second,signaling theory argues patent could work as positive signals delivered outsider stakeholders,including consumers and shareholers,and faciliate firms to win their recognition.Based on this argument,this study proposes patent number is positively to outside financing.The sinaling theory also indicates the validity of signal is relied on information asymmetry,the visibility of signal and the cost of signaling.Then this study proposes the information asymmetry between investors and firms would improve the signaling value of patent,as would positively moderate the relation between patent and outside financing.Also firm visibility and patenting cost(affected by industry competition and intellectual property protection)would both enhance the signaling value of patents.Third,real option theory views patent as option which are invested to strategically enhance future decision options and growth opportunities.This study explores the option value of patents from firm value and firm behavior,proposes that patent number is both positively related with growth option value and strategic change.Also,patent diversity would enchance the option value of patents,while continuous investing propotion would lower the option value of patents.Envrionment and firm level uncertainty would both enhance the relation between patent and growth option value,while weaken the relation between patent and strategic change.This study collects data from Chinse listed firms on Shanghai and Shenzhen stock market.The patent data is from the Intellectual property office of China,ranges from 2000 to 2010,and the financial data is from 2000 to 2014.Panel data regressions based on this dataset test our hypotheses.The empirical results show that:(1)Patent number has negative relation with accounting performance,indicating patent resource has significant cost effect.Also,the negative relationship seems weaker when human capital of top managers is higher and intellectual property protection is better.(2)Signaling theory is supported.Patent number is positively related to outside financing,and the relation is stronger when information asymmetry and firm visibility are higher.(3)The option value is supported because the effect of patent number on growth option value and strategic change are significant.Further,firm uncertainty would strength the option value and delay strategic change.In sum,this study suggests patent is not necessarily coming with economic profit,as resource baed view proposes,its strategic value reside more in signal and option investment.The research findings also indicates patent value is conditioned on boundary.Firm and environment level factors moderate the relateion between patent and market performance,outside fianancing,growth option value and strategic change,respectively.These theoretical arguments and empirical resuls provide implications for Chinese firms in terms of making decision realted to patenting,especially balancing the cost and benefits of patenting.Also,these research conclusions could be refered for policy makers to improve patent policy.