The relationships between the patent performance and corporation performance

Abstract

This study utilizes panel regression model to explore the relationships between corporate performance and the patent performance measured from patent H index, current impact index (CII), and essential patent index (EPI) in the pharmaceutical company. The results demonstrate that patent H index and EPI have positive influences upon corporate performance. Furthermore, this study developed a classification for the pharmaceutical companies to divide them into four types, and provided some suggestions to them.

Introduction

Patents, serving as an important output indicator of research and development activities, are widely adopted in researches concerning relationship between patent counts and corporation performance (Bosworth and Rogers, 2001, Comanor and Scherer, 1969, Deng et al., 1999, Scherer, 1965). However, they often fail to offer sufficient information regarding innovation output since that some enterprises may have only a few patents but with high influence, while others may have a lot of patents yet low in influence (Hirschey and Richardson, 2001, Park and Park, 2006). This phenomenon is also known as the skewed distribution of patent value which means that patents with high value and high influence only take a small portion of total patents (Park and Park, 2006, Schankerman and Pakes, 1986).

In light of this, many scholars suggest that patent citations could be used measure the influence of patent. The idea of measuring patent citations is based on the same base in Bibliometrics that the influence of certain publication could be measured by its citation. Therefore, patent citations could also be utilized as a measure of the technological quality and importance of the patent. Through patent citation analysis, fundamental or important patents could be identified in the sense that the more frequent the patent citations is, the higher influence the patent is of, or the more impact or important it possesses (Breitzman et al., 2002, Deng et al., 1999, Narin, 1994, Trajtenberg, 1990).

Trajtenberg (1990) argues that the higher frequency of corporation patent citations is, the more probability that the patents may serve as the fundamental of future patented technology development, and the more influence on technological development it may resume which meantime also may implicate the higher value of the patent (Brown and Svenson, 1998, Jaffe et al., 1993, Narin et al., 1997, Stolpe, 2002, Stuart and Podolny, 1996). Moreover, patent citations could also be used as the measure of corporation R&D output, innovation worth as well as corporation invention performance (Hagedoorn and Cloodt, 2003, Hall et al., 2005, Lanjouw and Schankerman, 2004, Trajtenberg, 1990).

In researches regarding the relationship between patent performance and corporation performances, many scholars have confirmed the positive relation between patent citations and market value in many industries such as manufacturing, pharmaceutical as well as semiconductor industries (Chen and Chang, 2010, Griliches, 1990, Hall et al., 2000, Hall et al., 2005, Lanjouw and Schankerman, 2004, Shane and Klock, 1997). Meanwhile, patent citations is also highly interrelated with profits and sales (Narin, Noma, & Perry, 1987). With patent counts and patent citations etc. as the indicator of corporation technological capacity, Deng et al. (1999) empirical study has further confirmed that the higher patent counts and patent citations are, the better corporation performance (stock return, market-to-book ratio) is. Besides, findings of Harhoff, Narin, Scherer, and Vopel (1999), and Harhoff, Schererc, and Vopeld (2003) also suggest positive relation between patent value and patent citations. Therefore, we can safely draw the conclusion that high patent citations also reflects high knowledge spillover and economic value (Chen and Chang, 2010, Griliches, 1990, Hall, 2000, Harhoff et al., 1999, Jaffe et al., 1993, Stolpe, 2002, Trajtenberg, 1990).

Based on the proposition that patent citations indicator demonstrates technological capacity quality of corporation, this study used three patent citations indicators – patent H index (Guan & Gao, 2009), current impact index (Breitzman & Narin, 2001), and essential patent index (Chen, Lin, & Huang, 2007) to explore their influences upon the corporate performance to fill the research gap. The structure of this paper is as follows: Section 2 would outline the literature review and hypothesis development; Section 3 described the methodology and measurement of this paper; Section 4 would discuss the empirical results; the final section was conclusions and implications of this study.