Competition and the value of innovation

Tools

Hu, Muhan and Ma, Linxiang (2026) Competition and the value of innovation. Journal of Corporate Finance, 96. 102909. ISSN 0929-1199 (https://doi.org/10.1016/j.jcorpfin.2025.102909)

[thumbnail of Hu-Ma-JCF-2025-Competition-and-the-value-of-innovation]
Preview
 Text. Filename: Hu-Ma-JCF-2025-Competition-and-the-value-of-innovation.pdf
Final Published Version
License: Creative Commons Attribution 4.0 logo
Download (1MB)| Preview

Abstract

We examine how competition affects the economic returns firms derive from their patented innovations. Using a stock market-based measure that reflects the discounted cash flows of newly granted patents, we document a robust negative relationship between competition intensity and the economic value of patents. To establish causality, we implement a quasi-experimental design and consider horizontal M&A as events that are likely to reduce competition for non-merging industry peers. Leveraging the random timing of peers’ patent grant dates within a narrow window around M&A announcements, we show that patents granted immediately after such events on average experience a 2.8% increase in value. This effect is stronger for deals that are more likely to be anti-competitive, but is absent for non-horizontal mergers that are unlikely to alter competition intensity. Overall, we offer new insights into the competition-innovation relationship by showing that competition weakens the economic returns that incentivize firm innovation.

ORCID iDs

Hu, Muhan ORCID logoORCID: https://orcid.org/0009-0008-2716-1660 and Ma, Linxiang ORCID logoORCID: https://orcid.org/0000-0003-2153-4565;
CORE (COnnecting REpositories)