Stock Market Reactions to Technology Licensing Contracts

Technology licensing consists of licensees buying technology usage rights from licensors, often in the form of patents, copyrights, and trademarks. This market amounted to about US$173.4 billion in 2009. Governance decisions determine if licensees can use licenses productively. Drawing on contract and governance theories, we propose that monitoring and termination clauses have financial performance implications. While licensing is an important phenomenon, surprisingly few studies addressed the impact of governance in a technology licensing context. Using a rich dataset of stock market returns, formal licensing contracts, and firm descriptors, we provide first insight into the drivers of financial returns for licensees.