Patenting Activities and Firm Performance: Does Firm Size Matter?

Abstract

Whereas prior research has provided valuable insights into the willingness of small and medium‐sized enterprises (SMEs) and large firms to engage in patenting, a comparison of the performance implications of patenting activities across small and large firms is still lacking. This gap is important becauseSMEs and large firms, having different resources and capabilities, might benefit from patenting activities in different ways. In particular,SMEs can be expected to benefit less from patenting activities in terms of protection against imitators than large firms. On the other hand, the propensity and ability ofSMEs to license out their patents and generate additional revenue streams might be relatively higher than that of their large counterparts. This paper studies the impact of patenting on licensing, innovation, and financial performance for bothSMEs and large firms, using multiple‐group path analyses on a sample of 358 manufacturing firms. Contrary to expectations, this study demonstrates that not only large firms, but alsoSMEs benefit from patenting in terms of commercializing product innovations. Moreover, for bothSMEs and large firms, such increased innovation performance in turn contributes to higher profit margins. Patenting activities also increase the ability ofSMEs and large firms to license out knowledge to external parties, and this positive effect is significantly stronger for large firms. However, neither inSMEs nor in large firms, these outward licensing activities generate short‐term financial benefits. Finally, the study demonstrates that patenting activities do not trigger significant cost disadvantages for eitherSMEs or large firms. Jointly, these findings provide unique insights in the value‐generating and cost‐increasing effects of patenting, suggesting that not only large firms, but alsoSMEs should consider patenting as a viable strategy to fully reap commercial benefits from their innovation activities. At the same time, they temper open innovation scholars’ expectations regarding the financial benefits of licensing out knowledge. Overall, these findings point to opportunities for optimizing the intellectual property management of bothSMEs and large firms.

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