Deleting Unreported Innovation
Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
62 Pages Posted: 4 Mar 2021
Date Written: February 27, 2021
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.
Keywords: Bias, Listwise Deletion, Innovation, Measuring Innovation, Multiple Imputation, Non-patenting Firms, Unreported R&D, Patents
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