Corporate Patenting, Customer Capital, and Financial Market Outcomes

We study how patenting enhances customer capital and creates financial value in a product market characterized by information asymmetry between firm insiders and customers. We find that firms with more and higher quality patents develop greater customer capital, as measured by more positive customer perceptions of product novelty and quality. To establish causality, we exploit the exogenous variation in the random assignment of patent examiners to review applications and use the average examiner leniency as an instrument for patent grants. Our mediation analysis documents a positive impact of patenting on firm performance and financial market valuation through enhanced customer capital.