Observational study uncovers higher market valuation for radical patents in family firms, highlighting divergent investor expectations for family versus nonfamily innovation.
Key Points
To investigate how specific patent attributes—distinguishing radical from incremental innovation—differentially shape stock market valuation for family versus nonfamily firms.
Analyzed an archival dataset of 52,241 patents granted to U.S. firms between 2014 and 2018.
Evaluated short-term stock market reactions in relation to patent indicators of radical innovation (novelty and pedigree) and incremental innovation (temporal depth).
The stock market reacted significantly more positively to patents granted to family firms than to nonfamily firms.
Radical innovation patents characterized by high novelty created greater market value for family firms than nonfamily firms, whereas the effect of patent pedigree was only marginally significant.
Incremental innovation patents measured by temporal depth had little effect on nonfamily firms' valuation but significantly reduced market value for family firms.