Impact of Patent Quality on Firm Performance: A Case of Indian Pharmaceutical Industry

Abstract

This study examines the relationship between 287 pharmaceutical firms' patent quality and their performance, measured by the profitability ratio and return on assets (ROA) in India. ROA measures the economic efficiency in relation to its overall resource, whereas the profitability ratio measures how much a firm can earn a profit on a rupee of sales. Based on the theoretical model, this study hypothesized that the quality of both product and process innovation positively impacts the firm performance. The quality of patent (innovation) is measured through Revealed Technology Advantage (RTA) and Relative Patent Position (RPP) in the most important technology, i.e. a technology where firms have a maximum patent. RTA measures the technological competencies in one particular technological field compared to other firms. On the other hand, RPP measures the firms leading position in a technological field compared to leader firms in that technology. The results drawn for both quality indicators (RTA and RPP) using quantile regression find significant differences among product and process innovation. Moreover, this study indicates that pharmaceutical firms should enhance their R&D capabilities and the leading position in the most important technology to increase their performance. © 2020 World Scientific Publishing Company.