Abstract:

While patents grant exclusive rights to inventions, many remain underutilized or non-commercialized. Understanding the extent to which a firm’s patent portfolio contributes to new product development may provide significant implications for future firm performance. We propose a machine learning approach to measure a firm's patent utilization rate, based on textual similarity between patent filings and new product descriptions. At the new product announcement event level, we show that new products supported by more patents yield higher announcement returns. At the firm level, patent utilization rate is positively associated with future new product development, market share growth, profitability, and firm valuation. The effects are predominantly driven by the utilization of high-value patents, and are more pronounced for firms in competitive product markets. We address endogeneity concerns using R\&D tax credits as instruments and demonstrate robust findings across various tests. Our findings highlight the strategic importance of integrating patents into the product development pipeline.

Guest Bio:

Qiu Buwei is a Professor of Business and Finance at the University of Sydney Business School. He earned his Ph.D. in Finance from the University of Cincinnati in 2009, a Master of Arts in Accounting from Sun Yat-sen University, a graduate diploma from the Hopkins-Nanjing Center for Chinese and American Studies (a collaboration between Johns Hopkins University and Nanjing University), and a Bachelor of Science in Physics from Fudan University. Before joining the University of Sydney Business School, he held a faculty position at the Rotterdam School of Management (Erasmus University Rotterdam). Prior to his academic career, he worked as a financial analyst and senior financial consultant at Ford, PwC Consulting, and IBM. His research interests include corporate finance, accounting, and capital markets. He has published more than 30 papers in top journals in finance, accounting, management, international business, and operations management, many of which are in FT50/UTD24 journals. He has received multiple international research awards, including two Chicago Quantitative Alliance (CQA) Academic Competition awards, and his research has been cited by various media outlets, including Bloomberg, The Economist, and MoneyWeek.