Standardization boosts firm value beyond innovation through diffusion
A Banque de France working paper finds that technology standardization significantly increases firm value beyond initial innovation. Patents incorporated into standards lead to additional value gains through productivity improvements and market rent extraction.
Innovation's dual value drivers
A Banque de France working paper disentangles the contributions of innovation and diffusion to firm value.
Using patent quality and semantic proximity measures, the study finds that producing a patent increases a firm's book value by 0.8% over the first eight years.
However, this value deteriorates if the patent is not incorporated into a standard.
In contrast, firms whose patent specifications are included in a standard experience an additional 0.4% increase in firm value thereafter.
Similar results are observed for market value and net worth.
The value gains from innovation primarily stem from productivity improvements, while those from diffusion arise from rent extraction, highlighting the central role of technological diffusion in sustaining firm value over time.
The competitive edge of standardization
Technology standards are fundamental to modern industrial societies, shaping the development and widespread use of goods and services.
They select technologies, promote adoption, foster interoperability, reduce information frictions, guide R&D, and ensure product quality.
Having a technology included in a standard provides a significant competitive advantage to firms, governing the diffusion of technologies across an industry.
This inclusion contributes substantially to firm value beyond the initial innovation, as firms with the know-how can immediately comply and scale.
Diffusion is the real game-changer
This study provides crucial empirical evidence on the often-underestimated role of technology diffusion in firm valuation.
It highlights that mere innovation is insufficient; strategic standardization is key to fully monetize R&D investments and secure long-term competitive advantage.
Policymakers should consider standardization processes as vital for economic growth and innovation ecosystem health.