Koh, P.S., Reeb, DavidM., Sojli, E., Tham, W.W. and Wang, W. (2022). Deleting unreported innovation Journal of Financial and Quantitative Analysis, 57(6):2324 -- 2354.
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Affiliated author
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Publication year2022
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JournalJournal of Financial and Quantitative Analysis
The absence of observable innovation data for a firm often leads us to exclude or classify these firms as non-innovators. We assess the reliability of six methods for dealing with unreported innovation using several different counterfactuals for firms without reported R\&D or patents. These tests reveal that excluding firms without observable innovation or imputing them as zero innovators and including a dummy variable can lead to biased parameter estimates for observed innovation and other explanatory variables. Excluding firms without patents is especially problematic, leading to false-positive results in empirical tests. Our tests suggest using multiple imputation to handle unreported innovation.