Innovation and Appropriation: Insights From the Chinese Patent Survey

ABSTRACT Using comprehensive microdata from the Chinese Patent Survey, we examine the appropriation strategies that firms use to capture value from their innovations and assess the motivations underpinning these strategies. Although Chinese firms exhibit a robust overall preference for patents, we find that firms often use patents for reasons other than directly protecting intellectual assets from competitors. In particular, our results suggest that firms utilize patents to secure external financing and negotiate third‐party production contracts, while relying on secrecy and/or first mover advantage to protect against competitor imitation. Furthermore, we find that firms pursuing the most expensive R&D projects exhibit a relative preference for secrecy over patents, consistent with theories that predict the use of secrecy to protect a firm's most valuable intellectual assets. Our results provide novel insights into China's recent patenting surge and help inform policy efforts to encourage domestic innovation in developing economies.