Strategic patent disclosure: Unraveling the influence of temporal preferences

Abstract

We examine how the temporal preferences of a firm’s management and shareholders affect the textual properties of patent documents. We argue that low patent readability decreases imitation concerns due to lower information disclosure, but increases concerns of patent invalidation or litigation. These concerns are likely to materialize at different points in time, implying that decision-makers with different time horizons prefer different levels of patent readability. Building a theory on the time horizon of institutional owners and chief executive officers, we hypothesize a positive relationship between institutional ownership and textual readability of patent documents. Our analysis of over 200,000 US patents provides empirical support for our theoretical contentions. Our findings suggest that the temporal preferences of firms’ decision-makers influence not only the extent of innovation activities but also the way in which firms craft and disseminate information about such activities.