Working Paper Series no. 1031. Technology standards are defined by national and international organizations to select and disseminate the best technologies and practices. Using a measure of patent quality and a novel measure of the semantic proximity between patents and standards documents, this paper exploits the standardization process to disentangle the respective contributions of innovation and diffusion to firm value. Producing a patent increases a firm’s book value by 0.8% over the first eight years following the patent grant. However, this value deteriorates when the patent is not incorporated into a standard and diffused. In contrast, only firms whose patent specifications are included in a standard experience an additional increase in firm value of about 0.4% thereafter. Similar results are obtained when examining firms’ market-value and net worth. Finally, by studying firm-level productivity and markups, we show that the value gains associated with innovation stem from productivity improvements, whereas those associated with diffusion arise from rent extraction.
Figure 1. Long-run contribution of innovation and standardization to firm book-value
Non-Technical Summary
Technology standards are fundamental to modern industrial societies, as they shape the development, production and widespread use of goods and services. Indeed, almost every technology we rely on a daily basis, from communication tools such as email and 5G to consumer devices and online payment systems, adheres to standards set by national or international standard-setting organizations, such as the International Organization for Standardization (ISO). These standards select certain technologies over others and promote their adoption, fostering interoperability among intermediate goods, reducing information frictions, guiding R&D, and ensuring product quality. As a result, they benefit both producers and consumers. Having a technology included in a standard is a major corporate event. Standardization governs the diffusion of technologies across an industry and provides a competitive advantage to firms that already possess the know-how and capabilities required to comply immediately with the standard. Consequently, the inclusion of a patent in a standard, and its ensuing distribution, contributes substantially to firm value beyond the value generated by innovation at the time a patent is granted.
By exploiting the grant date of patents, the publication date of standards, and a novel measure of the semantic proximity between patents and standards documents, this paper disentangles the respective contributions of innovation -the creation of new technologies- and diffusion -the adoption of these technologies through standardization- to firm value. While high-quality innovation immediately increases firm value, only firms whose patents are subsequently incorporated into a standard experience further increases in value in the long run. By contrast, firms whose patents are not included in standards see their value deteriorate over time.
Using a lead-lag framework to capture dynamic effects, this paper shows that patenting increases a firm’s book value by approximately 0.8% over a ten-year horizon, rising to 1.2% when the patent becomes part of a standard, but declining when it does not (Figure 1 below). This highlights the central role of technological diffusion in sustaining firm value over time. Similar patterns emerge to firms’ market value and leverage.
Finally, this paper shows that innovation primarily enhances firm productivity, whereas diffusion through standardization enables firms to temporarily extract higher markups and market rents. Overall, while innovation is essential for firm growth and value creation, diffusion driven by standardization is crucial for fully capitalizing on R&D investments, sustaining competitive advantage, and maximizing long-term firm value.
Keywords: Standardization, Patents, Innovation, Firm Value.
Codes JEL: G30; O31; O33.
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Updated on the 14th of January 2026