Relevance of Sources of Finance to Patent

[Purpose] Innovative performances are once of the most critical factors for a firm's long－term prosperity. R&D expenditures are used as an indicator to measure a firm's innovated activities in many previous researches. However, due to the time lag exist between the incurrence of R&D expenses and increases in profit, it has been difficult issue to judge the economic outcome of R&D expenses. For that reason, this paper aimed to measure a firm's innovative performances with U.S utility patents granted and tried to exam the relevance of sources of finance (external and internal) to patent probability. [Methodology] Accounting data of NYSE and NASDAQ traded U.S. firms as well as for sub－samples of small and large firms divided by the size, taken from the BvD's Osiris database, are collected over the 2017 to 2019. We performed a logistic regression analysis for the sample groups. [Findings] Empirical evidence explained that firms’ propensity to patent is significantly affected by both internal and external financing. As for an internal finance, limited operating cash flow of the sample firms resulted in higher innovative performances as measured by patents granted. This result indicates that firms with lower level of operating cash flows have high incentives to fund innovative projects to generate future profits. On the other hands, positive correlation was exhibited between external financing and patents signaling that companies utilize debt (bank loans, trade credits, etc.) financing to back their innovative projects with an exception of small firms which have limited ability to access external finance resources. [Implications] This study contributes to the recent studies by utilizing U.S. top 300 utility patents list as a measurement of firm's innovative output and conducted empirical researches using internal/external financing as contributing factors of innovation. However, the fact that considering only quantitative aspect of innovative performance (i.e. number of patents granted) and presenting a limited sample sizes are considered as limitations for this study.