Market value and patent citations

Author(s): Hall, Bronwyn H.; Jaffe, A; Trajtenberg, M | Abstract: We explore the usefulness of patent citations as a measure of the importance of a firm's patents, as indicated by the stock market valuation of the firm's intangible stock of knowledge. Using patents and citations for 1963-1995, we estimate Tobin's q equations on the ratios of RaD to assets stocks, patents to RaD, and citations to patents. We find that each ratio significantly affects market value, with an extra citation per patent boosting market value by 3%. Further findings indicate that unpredictable citations have a stronger effect than the predictable portion, and that self-citations are more valuable than external citations.