The Financial Impact of Patents on SMEs in China: Empirical Evidence from Pharmaceutical Sector

Abstract

With the disruptive technology innovation time arrival, small and medium-sized enterprises (SMEs) have been the motor of innovation and played an increasingly major role in national economic development. As the shift towards an ‘open innovation’ paradigm, awareness of intellectual property rights has increased, and patents have been an important tool for Chinese pharmaceutical enterprises. Considering its mass production of low-level generic drugs, there are still many arguments about its lack of innovation. This article aims to identify if and how patents, as essential indicators of innovation, generate financial performance measured by SMEs in the pharmaceutical sectors. Patent data are a vital source of competitive intelligence. A positive association was found between annually added patents and gross sales. Many other patent indicators, such as the number of forward citations and patent transfer, were statistically significant. Moreover, the results suggested that there was a one-year lag between patent publication and financial performance. A series of patent quantity and quality indicators have shown significant effects on the financial performance of Chinese pharmaceutical enterprises. These patents generate a positive financial impact, which builds up a solid basis for keeping sustainable innovation capability in the Chinese drug industry.