Open Innovation Signals: Exploring the Financial Data with Patents

Abstract

The study aims to explore how to measure firms’ open innovation from financial statements. So, our research question is as follows: How can we determine firms’ open innovation signals directly or indirectly from financial statements? This study used data from the US financial statements and patent registration database from 2016 to 2018 to answer this research question. Three manifest signals of open innovation in financial data were found. First, subsidiary or related firm investment in financial data may have a negative relationship with open innovation because open innovation (i.e., the co-application of patents) could decrease subsidiary or related firm investment. But there are differences between the top and bottom twenty firms. Second, internal R&D investment (I R&D) in financial data may have a positive relationship with open innovation because I R&D could trigger inward open innovation. If I R&D combines with an open innovation strategy, it increases the size of subsidiary or related firm investment as a kind of inward open innovation. Third, free cash flow (FCF) in financial data may have a positive relationship with open innovation because high FCF could support outward open innovation.