Real options, patents, productivity and market value : evidence from a panel of British firms

Patents citations are a potentially powerful indicator of technological innovation. In this paper we describe the IFS-Leverhulme patents dataset that we have constructed by combining information from the US Case-Western Patent database with UK company accounts and share price information from the London Stock Exchange. Patents citations like patentc ounts, arehighly skewed and have a modal lag of four years. Analysing data on over 200 major British firms since 1968, we show that patents have an economically and statistically significant impacton firm-level productivity and market value. Patent citations contain more information than simple counts. A doubling in the stock of citation-weighted patents is associated with a four percent increase in (total factor) productivity and an eight percent increase in market value. As expected patenting and citation information feeds into market values immediately but appears to have some additional lagged effects of productivity suggesting gradual takeup of new technologies.