Who is this research for? This research is relevant for analysts and business leaders involved in internal reporting, R&D, patenting decisions, and investor relations.
Executive Summary
This research from Yu Wang at the Sam M. Walton College of Business (Department of Finance) examines how firms can more accurately measure the economic value of innovation. Using a large sample of U.S. patent grant announcements, the study analyzes immediate stock market reaction as well as post-announcement returns, using media coverage and online search activity as indicators of ongoing investor attention.
The findings suggest that stock prices often underreact to patent announcements due to low investor attention, with a significant portion of a patent’s economic value only reflected gradually over time. By using an attention-weighted average that accounts for short- and long-term returns, the research proposes a more accurate way to assess the patent-holding firm’s future economic performance.
Action Items for Industry
- Reassess innovation performance metrics: Avoid relying solely on short-term stock price reactions to evaluate the economic impact of patent grants.
- Incorporate investor attention signals: Use indicators such as media coverage or investor engagement to better interpret market responses to innovation announcements.
- Adjust reporting metrics: Apply longer-horizon measures of innovation value when prioritizing R&D investments or strategic initiatives.
- Support internal reporting accuracy: Equip finance and analytics teams with evaluation tools that reflect delayed market learning about complex innovations.
- Align innovation and communication efforts: Coordinate patent activity with investor-facing disclosures to reduce underreaction when innovations are difficult to assess.
Quote from the Researcher
“Innovation creates value, but investors may discover it slowly.”
– Yu Wang
Co-Authors & Affiliations
Thomas J. Chemmanur — Boston College, Carroll School of Management
Dongmei Li — University of South Carolina, Darla Moore School of Business
Kevin Tseng — Chinese University of Hong Kong School of Business and National Taiwan University, College of Management
Link to the Original Research
Published in Journal of Financial and Quantitative Analysis, available here.
📩 Interested in learning more? If you’d like additional information about this research or to connect directly with the researchers, please email us at research@walton.uark.edu.
