Market valuation of international patenting using a real option approach: the moderating role of uncertainty

The article assesses the option value embedded in a firm’s patent assets relying on the Tobin's q market value model. In particular, novel empirical evidence on the market valuation of patent strategies is provided with regard to the universe of R&D reporting firms in France, Germany, Italy, and the U.K. The international patent applications filed under the Patent Cooperation Treaty are found to enhance the option value effect significantly more than IP protection pursued through a national patenting strategy. Furthermore, the paper reports that conditions of uncertainty regarding the firm and the market positively moderate the relative impact of the international patent application on market value and that the two sources of uncertainty mutually reinforce the moderating effect. These extended findings with uncertainty are in line with the real option theoretical framework, claiming that the bigger the uncertainty in the decision-making process, the larger the real option value effect. The paper concludes by discussing some relevant managerial implications, that take into the account not only the prosecution and maintenance costs of a firm’s IP protection strategy but also the relative flexibility in the decision-making process.