Does patent abandonment weaken performance persistence? A real option perspective

Abstract

Most studies on patent renewal propose that abandonment indicates low quality and weakens firm performance. However, in practice, firms sometimes abandon patents as a rational strategy for pruning their patent portfolios. The discordance between literature and practice manifest a research gap. Studies of patent quality view usually focus on individual patents but overlook firms’ strategic blueprints. This study aims to reconcile this discordance through real option perspective, by elaborating on how patent abandonment affects performance persistence. The empirical analysis uses panel data of 1920 listed firms in mainland China. The results show that patent abandonment is negatively but not significantly associated with performance persistence, indicating the limited explanatory power of the patent quality view. Furthermore, this study finds that uncertainty strengthens the relationship between the two variables, especially in the presence of a diverse patent portfolio. These findings are consistent with the arguments of real option theory and confirm the option value of abandoned patents.

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