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  2. ASSA Annual Meeting
  3. 2023
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  5. Innovation, Acquisition and Firm Growth
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Innovation, Acquisition and Firm Growth

Paper Session

Sunday, Jan. 8, 2023 10:15 AM - 12:15 PM (CST)

Sheraton New Orleans, Napoleon D
Hosted By: American Finance Association
  • Chair: Adrien Matray, Princeton University

Do Startup Patent Acquisitions Affect Inventor Productivity?

Joan Farre-Mensa
,
University of Illinois-Chicago
Zack Liu
,
University of Houston
Jordan Nickerson
,
University of Washington

Abstract

We show that the acquisition of a startup inventor’s first patent has a negative effect on the subsequent productivity of the patent’s inventor, leading to 6.7 fewer patents being granted to the inventor over the following five years. This effect is not due to the inventors of acquired patents being able to focus on high-quality patents—in fact, the opposite appears to be the case. Our novel identification strategy is motivated by two new findings: Incumbent firms are more likely to acquire the patents of startups that patent examiners ask them to cite, and examiners are more likely to cite patents that they have reviewed in the past. When combined with the quasi-random assignment of patent applications to examiners, these two findings give rise to quasi-random linkages between startups and potential acquirers that help identify the causal effect of patent acquisitions on inventor productivity.

Buy, Invent, or Both?

Felipe Cortes
,
Northeastern University
Tiantian Gu
,
Northeastern University
Toni Whited
,
University of Michigan

Abstract

Why do firms purchase technology instead of developing it internally? This
paper studies two main motives behind technology-driven acquisitions: synergies and
competition. We argue that the key determinant for the firm’s choice of organic growth
or acquisition of innovation is its profit shock volatility. Higher volatility leads to more
acquisitions and less in-house R&D. In addition, profitability of the firm’s physical investment influences what types of benefits it achieves from acquisitions. Less profitable
firms are more likely to acquire competitors while more profitable ones look for synergies.
We also find that shutting down the acquisition market completely has a significant and
negative impact on the firm’s own innovation. Not being able to make either synergy- or
competition-driven acquisitions reduces firm value by 12.53% and 20.24%, respectively.
Overall, mergers mitigate barriers to innovation and technology growth.

The Value of Trademarks

Rui Silva
,
Nova School of Business and Economics
Ekaterina Gavrilova
,
Nova School of Business and Economics
Pranav Desai
,
Nova School of Business and Economics
Margarida Soares
,
Nova School of Business and Economics

Abstract

We create a new measure of the value of an important, but previously understudied, type of intangible asset—trademarks. We quantify the stock market reaction to the publication of almost one million individual trademarks manually matched to their corporate owners. We find that trademarks possess substantial economic value for firms: the average individual trademark is worth $36.76 million, and the annual output of new trademarks represents approximately 2% of total assets. Firms that publish trademarks subsequently invest more in physical capital, hire more employees, increase production output, become more profitable, and increase their market share considerably. To establish the causal nature of these findings we exploit the quasi-random assignment of USPTO examiners to trademarks. Trademarks are complementary to patents and positively correlated with measures of knowledge capital, suggesting a strong association between trademarking and innovation. These results imply that trademarks are an important determinant of firm value and growth.

Discussant(s)
Song Ma
,
Yale University
Thomas Geelen
,
Copenhagen Business School
Paul Beaumont
,
McGill University
JEL Classifications
  • G3 - Corporate Finance and Governance