Patenting activity and financial performance at the Malaysian firm level: an empirical study (1994 – 2008)

While patenting activity is common in advanced economies, this is not the case in emerging economies. However, there is reason to be optimistic that patenting activity benefits an emerging economy such as Malaysia. This study analyzes the relationship between the patenting activity and financial performance at the Malaysian firm level for firms that have been granted patents in Malaysia and the United States of America. While previous empirical studies adopted the market valuation model, we use the profit maximization model as our theoretical underpinning for this study. Hence, the financial performance variables are measured based on the accounting information – the sales, profits and profit margin. While previous empirical studies measured the patenting activity from an invention based on a simple patent count, we measure from within the patent system. Hence the patenting activity variables are measured based on the patent renewal/ application and quality measures. The sample study has also been divided into manufacturing firms and technology fields – human necessities/ performing operations and mechanicals/ electronics. We applied a panel dataset from 1994 to 2008 and the model is estimated using panel least square, fixed effects model, random effects model and generalized method of moments with various types of effects specifications and transformations. The key finding from the hypotheses testing is that there is a significant relationship between patenting activity and financial performance at the Malaysian firm level, but that the impact is rather small and the signs are mixed. This situation may due to the competitive condition that the firms faced, even though patenting is well known for its monopoly power.