Cumulative Innovation and Market Value: Evidence from Patent Citations


  • Corresponding author: Sharon Belenzon, Duke University, Fuqua School of Business, 100 Fuqua Drive Durham, NC 27708, USA. Email:

  • I express my special gratitude to my PhD advisors Mark Schankerman and John Van Reenen. I am also grateful for valuable comments from Steve Pischke, Manuel Trajtenberg, Ashish Arora, Tomer Berkovitz, Nick Bloom, Steve Bond, Wesley Cohen, Bronwyn Hall, Iain Cockburn, Ben Jones, Fiona Murray, Andrea Patacconi, Luis Rios, Scott Stern, John Sutton and three anonymous referees. All remaining errors are my own.


If innovations are rapidly made obsolete by subsequent discoveries, firms may have lower ex ante incentives to invest in R&D. This article empirically demonstrates the relevance of this problem and shows that it might be mitigated if the inventing firm reabsorbs its ‘spilled’ knowledge in its later inventions. Using new data on sequences of patent citations, I estimate the relationship between a firm's stock market value and the citations it receives. Citations on which the firm builds in a future period are positively related to market value, whereas citations on which the firm does not build are negatively related to value.