Patent Intensity, Firm Life-Cycle Dynamics, and the Pricing of Technological Innovators
We introduce patent intensity (PI) - patents granted divided by market capitalization - to classify technological-innovator types starting from 1926. High-PI firms represent ten percent of total market capitalization but over half of five year-forward public-company patenting. PI-sorted portfolios earn significant return spreads for a decade post-formation, with low turnover. Alphas controlling for standard factors are persistently large, and innovators are punished less for aggressive investment and weak profitability. Adding an expected growth factor resolves mispricing across horizons, with loadings showing high, declining growth, aggressive, increasing investment, and weak, improving profitability. Patent intensity captures life-cycle dynamics in fundamentals, loadings, and returns.