|Title:||United States successful patent applications by industry sector in percentages for the period 1976 to 2005|
Start of full article - but without data
The list of XX four-digit SIC industries in which at least XX% of
the firms file successful patent applications during a calendar year
Industry % Patent Applications
Aircraft & parts XX.XX% Electronic & other electrical equipment (no XX.XX% computer equip) Computer & office equipment XX.XX% Primary production of aluminum XX.XX% Motor vehicles & passenger car bodies XX.XX% Chemicals & allied products XX.XX% Papers & allied products XX.XX% Plastic material, synth resin/rubber, cellulos XX.XX% (no glass) Guided missiles & space vehicles & parts XX.XX% Electronic connectors XX.XX% Semiconductors & related devices XX.XX% Heating equipment, except electric & warm air; XX.XX% & plumbing fixtures Aircraft XX.XX% Miscellaneous chemical products XX.XX% Office machines, NEC XX.XX% Farm machinery & equipment XX.XX% Office furniture XX.XX% Miscellaneous products of petroleum & coal XX.XX% Lawn & garden tractors & home lawn & garden equipments XX.XX% Plastic materials, synth resins, & nonvulcan elastomers XX.XX% Auto controls for regulating residential & commercial XX.XX% environments Construction machinery & equipment XX.XX% Rubber & plastics footwear XX.XX% Soap, detergents, cleaning preparations, XX.XX% perfumes, cosmetics Surgical & medical instruments & apparatus XX.XX% Paints, varnishes, lacquers, enamels, & allied prods XX.XX% Metalworking machinery & equipment XX.XX% Aircraft parts & auxiliary equipment, NEC XX.XX% Computer storage devices XX.XX% Motorcycles, bicycles & parts XX.XX% Special industry machinery, NEC XX.XX% Power, distribution & specialty transformers XX.XX% Paper mills XX.XX% Motor vehicle parts & accessories XX.XX% Laboratory analytical instruments XX.XX% Search, detection, navigation, guidance, XX.XX% aeronautical system Beverages XX.XX% Household audio & video equipment XX.XX% Greeting cards XX.XX% Metal cans XX.XX% Dolls & stuffed toys XX.XX% Food and kindred products XX.XX% Switchgear & switchboard apparatus XX.XX% Electronic computers XX.XX% Engines & turbines XX.XX% General industrial machinery & equipment, NEC XX.XX% Household appliances XX.XX% Industrial process furnaces & ovens XX.XX% Public building & related furniture XX.XX% Biological products (no diagnostic substances) XX.XX% Grain mill products XX.XX% General industrial machinery & equipment XX.XX% Pharmaceutical preparations XX.XX% Computer peripheral equipment, NEC XX.XX% Electric housewares & fans XX.XX% Paperboard mills XX.XX% Electromedical & electrotherapeutic apparatus XX.XX% Instruments for measuring & testing of electricity XX.XX% & electric signals Air-conditioner & warm air heating equipment & XX.XX% commercial & industrial refrigeration equipment Pumps & pumping equipment XX.XX% Oil & gas field machinery & equipment XX.XX% Electronic components & accessories XX.XX%
This paper establishes a strong relation between technology competition and corporate bankruptcy. Using detailed firm-level patent data, we show that: X) the capability of firms to innovate predicts future bankruptcies better than the typical measures such as Z-score and credit rating, X) technology-related bankruptcies are less sensitive to the business cycle and industry success, and X) firms that go bankrupt as a result of technology competition experience larger declines in earnings and stock prices.
The finance literature has a long history of analyzing corporate bankruptcy. This includes development of bankruptcy prediction models, assessment of bankruptcy costs, and analysis of the association between bankruptcy and macroeconomic conditions. While many bankruptcy studies cover a large set of accounting- and finance-based data, no study has examined directly the influence of technology competition on bankruptcy. In this paper, we argue and find that the ongoing technology progress of firms contains important information with respect to the risk, costs, and pattern of bankruptcy.
As technology rapidly advances, firms have to operate in highly competitive environments full of gradual and radical innovations. These scenarios provide firms with an opportunity to become market leaders if they develop the most recent, updated, and well-adopted technologies. Yet, they also involve nontrivial operational risk if the firms lose in the technology race. That is, firms outperformed by their competitors in technology-intensive industries typically find it challenging to catch up, which could lead to a substantial bankruptcy risk. (X)
The patent system makes the relation between technology competition and bankruptcy even more direct. A patent assignee firm can sue competitors for infringement of its patents. Litigation may prohibit the defendant from performing any activities potentially related to that infringement. Should a court grant the plaintiff firm's request of injunction, some operations of the defendant could be shut down. This enforcement can result in severe financial distress for the defendant firm (see, e.g., Lanjouw and Lerner, 2001). Moreover, all other explicit and implicit costs arising in the patent litigation process can seriously deteriorate the financial status of the defendant (see Lerner, 1995; Hall, 2004).
We propose a simple model to analyze the association between technology competition and bankruptcy. The model considers two firms competing over a new technology in a representative industry and produces the effects of this competition on bankruptcy properties. The implications of the model are consistent with the economic intuition obtained from the literature and prompt three primary hypotheses. The first hypothesis posits that the level of a firm's technology competitiveness predicts its likelihood to go bankrupt. The common bankruptcy prediction models rely primarily on financial ratios that reflect the current financial status and operating performance of the firm. These ratios, however, do not necessarily capture the status of the firm in the technology competition, which can be a dominant factor in the survival of the firm, especially in industries characterized by intensive technological innovations.
The second hypothesis addresses the relation between bankruptcy and macroeconomic conditions. Economic intuition and the empirical evidence suggest that there are fewer bankruptcies in prosperous industries and when the economy is in good shape. We argue that this association is weaker for bankruptcies that are driven by technology competition. The intuition is as follows. Technological innovations typically enhance the economy, and particularly the technologyintensive industries (e.g., Hsu, 2009; Bena and Garlappi, 2011). Yet, at the same time, these innovations put the firms that lose in the innovation competition at a serious disadvantage, which could propel them toward bankruptcy (e.g., Solt, 1993; Fogel, Morck, and Yeung, 2008; Garleanu, Kogan, and Panageas, 2009).
The third hypothesis poses that bankruptcies that are driven by technology competition are more costly. This is due to a rapid decline in demand for products of the "old technologies," higher depreciation for obsolescent equipments and inventories, the poorer reputation of firms that do not keep up with advances in technology, and the costs of potential patent litigation. In other words, while bankrupt firms typically experience a gradual deterioration in performance, a firm that loses in the technology competition could find itself very quickly without any competitive strength.
We test these three hypotheses using the detailed patent data of US public firms from 1976 to 2005. Patent data are considered the most direct measure of firm-level innovation output in the accounting and economics literature (e.g., Pakes and Griliches, 1984; Pakes, 1985; Francis and Smith, 1995; Holthausen, Larcker, and Sloan, 1995; Deng, Lev, and Narin, 1999; Bastin and Hubner, 2006), and have several advantages for assessing technological competitiveness. First, unlike research and development (R&D) expenditures, which involve uncertainty and often inefficiency (see, e.g., Jensen, 1993), patents are realized technologies affecting future operating performance and are publicly traded (see Lev, 2001). Second, patents draw competition because they are proprietary and exclusive. Third, as patent competition and litigation have surged in a variety of industries, many firms have realized the necessity of defensive patent filings (see, e.g., Hall, 2004; Hall and Ziedonis, 2007). Fourth, patents are a powerful tool in hindering competitors or creating income from royalties (see, e.g., Lerner, 1995). In fact, many major patent-filing firms, such as Texas Instruments Inc. and Intel Corporation, have their own litigation teams to monitor their rivals' technology activities.
The empirical evidence supports our hypotheses. We first find that patent competition predicts future bankruptcies at three different levels. At the aggregate level, an increase in patent activity, especially in technology-intensive industries, leads to more bankruptcies. At the industry level, the number of patent issues in a technology-intensive industry is positively associated with bankruptcy among the firms in the industry that did not receive patents recently. This relation remains significant in the presence of well-used bankruptcy predictors, namely, Z-score, credit rating, and the KMV measure. At the firm level, we propose a two-factor measure of a firm's technology competitiveness. The first factor captures the ability of a firm to create patents, adjusted to its R&D effort, and the second factor captures the intensity of the technology competition in the industry the firm belongs to. Logit regressions show that both factors significantly predict firm bankruptcy. Furthermore, our two-factor model outperforms Z-score, credit rating, and the KMV measure in predicting bankruptcy. Technology competition hence explains a substantial and distinct part of corporate bankruptcy. These findings strongly support the first hypothesis.
Second, we assess the effect of technology competition on the relation between macroeconomic conditions and bankruptcy. At both industry and firm levels, the likelihood to go bankrupt as a result of patent competition is less sensitive to the business cycle and industry growth, as posited by our second hypothesis. Thus, technological innovations, which typically enhance market and industry conditions, also severely exacerbate the performance of firms that do not move forward with the changes in technology.