Impact of Patenting on Profitability of Firms

This research paper analyzes the effect of patents on firm profitability. To be more precise, net income, return on assets and Tobin’s q. In order to investigate the relationship, a sample of 2,488 publicly traded U.S. firms for the period of 2000-2008 was gathered. Variables such as net income, return on assets, Tobin’s q, research and development expenses, number of patents and employees, total assets and market value were used in pooled ordinary least squares regressions. The results indicated that patents only lead to higher net income, whereas the relationship between number of patents with return on assets and Tobin’s q is negative. Therefore it leads to a conclusion that while patents lead to higher net income, it might negatively affect other profitability measures of a firm.