“Quantity” or “Quality”: How do High-Quality Patents Affect Firm Performance?

Abstract

Achieving scientific and technological self-reliance is fundamentally dependent on the innovation capacity of firms. High-quality patents, as core knowledge assets, encapsulate the most cutting-edge R&D achievements of firms. This is particularly crucial for non-listed innovative firms, where patent quality serves as a key indicator of innovation capabilities. The level of patent quality directly determines whether these firms can fully leverage their competitive advantages, enhance operational performance, and achieve high-quality innovation-driven development. However, due to limitations in data availability, most existing research on patents in China has focused predominantly on quantitative indicators, often confined to specific industries. As a result, the literature has largely overlooked the systematic and comprehensive measurement of patent quality, especially for non-listed innovative firms, impeding a holistic evaluation of their innovation capabilities and strategic developmental pathways.

This paper utilizes a dataset comprising 13.461 million granted invention and utility patents since the implementation of the Patent Law in China to systematically measure the patent quality of large-scale industrial firms. By constructing a theoretical model of technology choice that incorporates firm heterogeneity, the study explores the dual-path transmission mechanisms through which patent output impacts firm performance. The characteristic analysis reveals that Chinese firms are undergoing an accelerated phase of innovative development. While patent output is increasingly concentrated among a small number of “star firms” that dominate large-scale innovation, the overall quality of innovation across firms has shown significant improvement. The empirical findings, based on panel regression analysis, demonstrate that both patent quantity and patent quality positively contribute to enhancing firm performance, with the effect of patent quality being significantly stronger. Specifically, the impact of patent quality on firm performance operates primarily through a technology enhancement effect, which improves production efficiency and establishes technological barriers, thereby strengthening firms’ competitive advantages. Conversely, the effect of patent quantity functions through a signal transmission effect, where a large patent portfolio conveys positive signals to external stakeholders, reducing uncertainties about the firm’s innovative potential and reliability. This signaling reduces information asymmetry between firms and external actors, such as capital markets or government agencies, thereby attracting external funding, alleviating financing constraints, and ultimately improving firm performance.

Furthermore, the paper conducts a heterogeneity analysis to uncover variations in these effects across different firm types and industries. The findings suggest that patent quality exerts a more pronounced influence on the performance of non-state-owned firms, growth-oriented firms, and firms operating in labor-intensive industries. Additionally, firms pursuing breakthrough innovation strategies experience stronger performance impacts from both patent quantity and quality. These insights underscore the differentiated role of patents in driving innovation and performance under varying strategic, organizational, and industrial conditions.

The contributions of this paper are threefold. First, it provides a systematic assessment of the patent quality levels of industrial firms in China, analyzing their overall characteristics and dynamic trends. By focusing on non-listed innovative firms, the study addresses a critical gap in the literature concerning the measurement of innovation quality in Chinese firms. Second, the study develops and empirically validates theoretical models to examine the relationship between patent quality and firm performance. This approach enables a robust comparative analysis of the respective impacts of patent quality and quantity. Third, the study elucidates the mechanisms and pathways through which patent quantity and quality influence firm performance, focusing on the dual effects of technology enhancement and signal transmission. Additionally, by analyzing heterogeneous effects across firm characteristics, innovation strategies, and industry attributes, the study offers actionable insights for enhancing the innovation capabilities of Chinese firms.

In the broader context of China’s pursuit of scientific and technological self-reliance, the findings of this study highlight the centrality of high-quality patents in fostering independent innovation and establishing core competitiveness in critical and emerging technologies. By systematically investigating the relationship between patent quality and firm performance, the study provides valuable evidence and policy recommendations for firms and policymakers to formulate effective innovation strategies, enhance the quality of innovation outputs, and drive high-quality economic development. These insights contribute to the broader discourse on building a strong patent-driven innovation ecosystem and achieving the strategic goal of technological self-reliance in China.