Market Value and Patent Citations

• Published in: The Rand journal of economics Vol. 36; no. 1; pp. 16 - 38
• Main Authors: Hall, Bronwyn H., Jaffe, Adam, Trajtenberg, Manuel
• Format: Journal Article
• Language: English
• Published: Santa Monica RAND 01.04.2005; The RAND Corporation; Rand Corporation
• Series: RAND Journal of Economics
• Subjects: Bibliographic citations; Business structures; Business studies; Capital and Ownership Structure; Coefficients; copyrights) Firm; Data analysis; Economic performance; Economic value; Empirical research; Event Studies Financing Policy; financial ratios; Firm value; Information and Knowledge Asset Pricing Information and Market Efficiency; Innovation diffusion; Inventions; Knowledge; Knowledge management; Learning; Legal aspects; Market value; Property rights; R&D; Research & development; Research and development; Search; Stock exchange; Stock Market; Stock prices; Stocks; Studies; Technological innovation; Truncation; value of firm Intellectual Property Rights: National and International Issues (patents
• ISSN: 0741-6261; 1756-2171

We explore the usefulness of patent citations as a measure of the "importance" of a firm's patents, as indicated by the stock market valuation of the firm's intangible stock of knowledge. Using patents and citations for 1963-1995, we estimate Tobin's q equations on the ratios of R&D to assets stocks, patents to R&D, and citations to patents. We find that each ratio significantly affects market value, with an extra citation per patent boosting market value by 3%. Further findings indicate that "unpredictable" citations have a stronger effect than the predictable portion, and that self-citations are more valuable than external citations.