The Use and Misuse of Patent Data: Issues for Corporate Finance and Beyond
Patents and citations are powerful tools for understanding innovative activity inside the firm, and are increasingly use in corporate finance research. But due to the complexities of patent data collection and the changing spatial and industry composition of innovative firms, biases may be introduced. We highlight several patent-level biases induced by truncation of reported patent awards and citations, affecting estimates of time trends and patterns across technology classes and regions. We then introduce measures of patent and citation biases. When aggregated at the firm level, these survive popular methods of adjustment and are correlated with firm-level characteristics. We show that these issues can lead to problematic – and ex ante predictable – inferences, using several examples from prominent streams of finance literature that use patent data. We suggest a number of concrete steps that researchers can employ to avoid biased inferences.
Harvard University and Stanford University and Hoover. Both authors are affiliates of the National Bureau of Economic Research. We thank for helpful comments Jean Barrot, Shai Bernstein, Nick Bloom, Umit Gurun, Adam Jaffe, Bill Kerr, Adrien Matray, Scott Stern, Noah Stoffman, Per Stromberg, Xuan Tian, and participants in the American Economic Association annual meetings, and seminars at Cornell University, Harvard University, and the National Bureau of Economics Research. We especially thank Jinpu Yang for thoughtful analysis and outstanding research assistance. We also thank Paul Matsiras, Lilei Xu, and Yao Zeng for excellent research assistance with this paper; and Filippo Mezzanotti for the patent reassignment analysis. Harvard Business School’s Division of Research (Lerner) and Center for Research in Security Prices at University of Chicago (Seru’s previous affiliation) provided financial support. All errors and omissions are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Josh Lerner periodically receives compensation for advising institutional investors, private equity firms, corporate venturing groups, and government agencies on topics related to entrepreneurship, innovation, and private capital.