What Happens When Firms Patent? New Evidence from U.S. Economic Census Data

In this study, we present novel statistics on the patenting in US manufacturing and new evidence on the question of what happens when firms patent. We do so by creating a comprehensive firm-patent matched dataset that links the NBER patent data (covering the universe of patents) to firm data from the US Census Bureau (which covers the universe of all firms with paid employees). Our linked dataset covers more than 48,000 unique assignees (compared to about 4,100 assignees covered by the Compustat-NBER link), representing almost two-thirds of all non-individual, non-university, non-government assignees from 1975 to 1997. We use the data to present some basic but novel statistics on the role of patenting in US manufacturing, including strong evidence confirming the highly skewed nature of patenting activity. Next, we examine what happens when firms patent by looking at a large sample of first time patentees. We find that while there are significant cross-sectional differences in size and total factor productivity between patentee firms and non-patentee firms, changes in patentownership status within firms is associated with a contemporaneous and substantial increase in firm size, but little to no change in total factor productivity. This evidence suggests that patenting is associated with firm growth through new product innovations (firm scope) rather than through reduction in the cost of producing existing products (firm productivity). Consistent with this explanation, we find that when firms patent, there is a contemporaneous increase in the number of products that the firms produce. Estimates of (within-firm) elasticity of firm characteristics to patent stock confirm our results. Our findings are robust to alternative measures of size and productivity, and to various sample selection criteria.