Patents as an financial

indicator
Archana Rajamanickam
Innovation

 Innovation is not the product of logical thoug

ht, although the result is tied to logical struct
ure.
  Albert Einstein
  
Never before in history has innovation offered
promise of so much to so many in so short a
time
  Bill Gates
PATENTS

The question is : Are these expenses justified ?

How do we judge innovation in a company?
PATENTS
 A patent for an invention is the grant of a
property right to the inventor, issued by the
Patent and Trademark Office. The term of a
new patent is 20 years from the date on which
the application for the patent was filed in the
United States or, in special cases, from the
date an earlier related application was filed,
subject to the payment of maintenance fees.
US patent grants are effective only within the
US, US territories, and US possessions.
PATENTS as a measure of Innovation
 Comparative indicators of Innovation.

 Patents & RD expenses

 Patents & Market Capitalization

 Patents & Income

 Patents & Stock returns
Data
 USPTO :- Patent Data

 Financial Data : Bloomberg

 R&D expense
 Market cap
 Income in million
 Stock returns for 3 years
Patents & R&D
Coefficientsa
Standardiz
Unstandardized ed
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 50.936 40.078 1.271 .210
RDmillions .214 .019 .862 11.536 .000
a. Dependent Variable: patentsnumber

Rsquare = 74.3%

Number of patents = 50.936 +0.214(R&D in millions)

 Patents & Maket Cap
Coefficients  
Standardize
d
Unstandardized Coefficients Coefficients

Model B Std. Error Beta t Sig.

1 (Constant) 166.947 58.972 2.831 .007

Market Cap .006 .001 .614 5.273 .000

Rsquare = 37.7%

Number of patents = 166.947 +0.006 (Marketcapitalizationinmillions)

Patents & Income
Coefficientsa

Standardized
Unstandardized Coefficients Coefficients

Model B Std. Error Beta t Sig.

1 (Constant) 831.096 484.103 1.717 .093

patentsnumber 4.630 .882 .621 5.252 .000

R square = 38.5%

Income = 831.096 + 4.630(Number of Patents)

Patents & Stock returns

Coefficients  
Standardize
d
Unstandardized Coefficients Coefficients

Model B Std. Error Beta t Sig.

1 (Constant) -20.666 5.163 -4.003 .000

patent3yr .036 .009 .578 4.126 .000

a. Dependent Variable: avgreturn

R square = 33.4%

Avg. Market return = -20.666 +0.36(average number of patents)

Conclusion
 Given the inadequate public disclosures,
analysts may benefit from examining patent-
related measures that reflect various
qualitative aspects of companies' science and
technology activities. Our empirical analysis
indicates that most of the patent attributes we
examined are statistically associated and this
suggests that patent-based measures provide
a useful tool for the investment analysis of
technology- and science-based enterprises