Innovation Quality in the Automobile Industry: Measurement Indicators and Performance Implications

Abstract

This study investigates two major issues related to innovation quality in automobile companies. First, this study assesses a number of different indicators of innovation quality in the automobile industry. Second, this study examines the relationship between innovation quality and firm performance. Five indicators are developed (namely, patent count, relative citation ratio, citation-weighted patents, science linkage, scope of innovations) for measuring innovation quality using patent counts and patent citations from the US Patent and Trademark Office database. Time-series cross-section patent data from 17 global automobile firms between 1983 and 2002 were used for random effect model. The empirical results show obvious differences among 17 automobile firms in five indicators of innovation quality, and three indicators measuring firm innovation quality (that is patent count, citation-weighted patents and scope of innovations) positively and significantly affect firm profits.