Technological Uncertainty, Value Appropriation, and Dense Versus Dispersed Patent Portfolios

Patented inventions play an important role in generating firm value, with conventional wisdom generally suggesting that dense patent portfolios promote greater value. We challenge the universality of this assumption and argue that the relationship between patent portfolio density and firm value depends on factors reflecting other key invention-related conditions and choices. Specifically, we hypothesize that dispersed patent portfolios are positively associated with firm value when technology inputs are young and the technology is far from the locus of inventive activity, and dense portfolios are positively associated with firm value under the opposite conditions. We examine these relationships using a stock return response model, finding support for our hypotheses based on data collected from firms patenting in the chemicals technology area.