When does selling make you wiser? Impact of licensing on Chinese firms’ patenting propensity

With the rising trend of open innovation, firms routinely engage in licensing out their technologies. However, little research has examined how licensing-out impacts a firm’s subsequent ability to innovate. We argue that firms develop superior intellectual property management capabilities as a function of their licensing-out activities. We further argue that firms that participate in technology market through both licensing-in as well as licensing-out develop superior licensing and knowledge assimilation capabilities, which help them improve their patenting performance. We test our hypotheses using a longitudinal survey data of Chinese firms and find broad support of our hypotheses. We further discuss the implications of our theory and managerial practice.