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 because SMEs 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 of SMEs 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 both SMEs 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 also SMEs benefit from patenting in terms of commercializing product innovations. Moreover, for both SMEs and large firms, such increased innovation performance in turn contributes to higher profit margins. Patenting activities also increase the ability of SMEs and large firms to license out knowledge to external parties, and this positive effect is significantly stronger for large firms. However, neither in SMEs 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 either SMEs 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 also SMEs 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 both SMEs and large firms.

Do Entrepreneurial SMEs Perform Better Because They are More Responsible?

“…Consistent with past research indicating that the effect of entrepreneurial and sustainable activities on performance may be contingent on firm size and age (Andries and Faems 2013;Aragon-Correa et al 2008), we controlled for both variables. Firm size was measured by a proxy, namely, the number of full-time equivalent employees who were employed over the last year (1-9, 10-19, 20-49, 50-99, 100-199, and 200-249).…”

A review of literature on open innovation in small and medium-sized enterprises

“…Abouzeedan et al (2013) argue that these challenges include scarcity of resources, complexity of scientific field, coordination of the operative functions of the firm, and access to up-to-date scientific excellence. Even though licensing out the knowledge of SMEs to external parties is beneficial for them, it is not appropriate for short-term benefits (Andries and Faems 2013). Christensen et al (2005) highlighted that the complexity of interplay between technology entrepreneurs and incumbents.…”

“…Andries and Faems (2013) found that patenting activities significantly help SMEs to license out their knowledge to external parties. Timely recognition of opportunities for out-licensing a firm's technologies outside its core business is challenging.…”

“…In service SMEs, Suh and Kim (2012) found that technology acquisition is positively related to patenting activity. SMEs may consider patenting as an important strategy to fully benefits from their innovation activities (Andries and Faems 2013).…”

The effects of R&D intensity and internationalization on the performance of non-high-tech SMEs

“…First, we incorporated a dummy variable to distinguish high-tech SMEs from non-high-tech SMEs (e.g. Andries and Faems, 2013) by drawing on Eurostat's (2014) NACE Rev. 2 distinction between high-tech or knowledge-intensive sectors and non-high-tech or non-knowledge-intensive sectors (see Table 3).…”