How do patent thickets affect financial performance: a three-way interaction model

Firms may suffer differently from the patent thickets in a particular technology field. This paper explores how patent thickets affect the financial performance of firms with different patent propensities and technological leadership.

From the perspective of patent strategy, the authors study how patent propensity, the possibility that a firm applies for patents, affects the patent thickets and financial performance. Additionally, this paper uses patent stock to measure technological leadership, the degree to which a firm can develop, maintain and enhance technology and product innovation, to study the impact of patent propensity on firms. A three-way interaction model is used to explore the relationship among patent thickets, patent propensity, technological leadership and financial performance based on an unbalanced panel of 69 Chinese telecommunication equipment firms from 2008 to 2019.

The authors find that patent propensity positively moderates patent thickets and financial performance. Notably, technological leadership negatively moderates the moderating effect of patent propensity.

This paper enriches the heterogeneous literature of patent thickets and financial performance. It sheds light on the fact that firms with different technological leadership may use different patent strategies to cut through patent thickets.