Firm Size, Technological Diversity, and the Rate and Quality of Patented Innovations

I study the size and scope determinants of innovation rate and quality for a large panel of U.S. manufacturing firms. I employ known indicators of patent quality to show that quality-adjusted patents per dollar of R&D fall with firm size. This finding is in line with previous research, and is driven by the variation in patent counts rather than the variation in patent quality. In contrast, firm size has no effect on the average quality of innovation at the firm level. Technological diversity increases the quality-adjusted patent count on most of the diversity scale, but its relationship with average quality is an inverted-U. The paper's results are consistent with the presence of a quality-quantity trade-off in innovation: As R&D intensity increases, the rate of corporate innovation falls, but its average quality increases. Finally, I find that appropriability conditions have a similar, non-linear effect on both the rate and quality of innovation.