143 NTU Management Review Vol. 31 No. 2 Aug. 2021 fewer citations because of their shorter time in existence. To prevent this problem, we follow Hall, Jaffe, and Trajtenberg (2001, 2005) to measure the patent adjusted citation by correcting the number of citations received by each patent by the application year and by the technology classification.17 3.2.2 Other Control Variables We follow previous studies in adopting several control variables for innovation in the regression analysis. These variables include firm size, the lagged effect of R&D expenditures, firm leverage, firm performance, and firm value. Bhattacharya and Bloch (2004) find that an increment in innovative activities is accompanied by an increment in firm size. By contrast, Shefer and Frenkel (2005) argue that there is a negative relation between firm size and R&D expenditure. Thus, we measure total assets and net sales as proxies for the firm’s size. Hall (2002) finds that R&D-intensive firms use less debt financing because R&D investment has greater uncertainty and less collateral. Studies also find that the availability of financing influences R&D expenditures (Brown, Fazzari, and Petersen, 2009; Brown et al., 2012, and Hsu et al., 2014). Thus, we adopt the debt ratio, which is the total liability divided by total assets, to measure the firm’s leverage. Hitt, Hoskisson, Ireland, and Harrison (1991) suggest that when a firm’s profitability increases, managers will become more risk-adverse and reduce intangible investment. More recently, Greve (2003) and Chang et al. (2019) also find the same results. Hence, we adopt Return On Assets (ROA), which is the Earnings Before Interest, Taxes, Aepreciation, and Amortization (EBITDA) divided by the average of total assets, to measure a firm’s performance. Tobin’s Q is the market value of equity plus the book value of long-term and shortterm debts, divided by book assets. Tobin’s Q is usually used as the financial marketbased measure of a firm’s performance (Wernerfelt and Montgomery, 1988). Connolly and Hirschey (2005) adopt Tobin’s Q to evaluate the firm’s value based on R&D expenditures and show that larger firms have a greater valuation effect from R&D. Aghion et al. (2013) also use Tobin’s Q to control for the influence of a firm’s market value on innovation. 17 The technology classification of the PATSTAT database is based on the International Patent Classification (IPC) system. Hall et al. (2001) classify the 3-digit IPC code into 6 main industrial categories and use the simulated cumulated lag distribution of each category to calculate the truncation adjusted citations.
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