Document Type : Research Paper

Authors

• Shadi Hasanzadeh ¹
• Khadijeh Eslami ²
• Mana Farahi ³

¹ Assistant Prof., Department of Accounting, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran

² Assistant Professor, Department of Accounting, Bandargaz Branch, Islamic Azad University, Bandargaz, Iran

³ Department of Accounting, Bandargaz branch, Islamic Azad University, Bandargaz, Iran.

Abstract

Today, knowledge, innovation, and technology play a crucial role in economic growth and development. Among the key factors influencing innovation, the security of intellectual property rights stands out as both essential and challenging. This study examines the impact of intellectual property protection on innovation, considering the mediating roles of research and development (R&D) expenditures and financial constraints. The analysis covers 119 companies listed on the Tehran Stock Exchange from 2018 to 2022, using a correlation-analytical approach. The results of hypothesis testing, based on a regression model, indicate that intellectual property protection fosters innovation within companies. Additionally, R&D expenditures and financial constraints act as mediating factors in this relationship. The findings suggest that strengthening intellectual property protection shields innovators from imitation and theft, encouraging companies to invest more in innovation. By securing exclusive rights, firms can achieve higher profitability and returns on investment. Furthermore, confirming the mediating effects of R&D expenditures and financial constraints highlights that increased intellectual property protection generates positive feedback for investors, thereby reducing financial constraints. This, in turn, allows for greater budget allocation to innovation. These insights can assist policymakers, standard-setters, and legislators in refining national strategies by deepening their understanding of the benefits and challenges associated with intellectual property protection. By implementing targeted incentive policies, they can encourage capital market participants to drive innovation and enhance corporate innovation activities.

Introduction

In today's world, innovation serves as the primary driving force behind economic and social progress, holding an unrivaled position in global competition. Companies, as key players in this landscape, strive to secure their survival and future by generating new ideas and transforming them into innovative products and services. As a result, innovation has become a strategic necessity for business growth and sustainability (Yu et al., 2021; Li et al., 2021).
Intellectual property (IP) refers to human intellectual creations and initiatives that, beyond their intangible nature, hold significant economic value. Both national legal systems, such as Iran’s Property and Documents Registration Organization, and international bodies, such as the World Intellectual Property Organization (WIPO), have established frameworks to protect IP rights (Namazi and Khorramdel, 2022). Various theories have been proposed to justify and define the exclusivity of intellectual property rights (IPR) and the necessity of IP protection. Among the most prominent are the Incentive for Creation theory and the Compensation for Public Disclosure theory (Liu et al., 2024).
The relationship between IPR and innovation is complex and non-linear, influenced by multiple factors, particularly research and development (R&D) expenditure and financial constraints. R&D expenditure reflects a company's commitment to technological progress and product development, playing a critical role in transforming ideas into market-ready innovations. Conversely, financial constraints act as a major barrier to innovation, significantly limiting a company’s ability to generate and develop new ideas (Liu et al., 2024).
Given these dynamics and the limited literature on intellectual property within the accounting field, this study aims to explore the relationship between intellectual property protection and corporate innovation. It also seeks to determine whether R&D expenditure and financial constraints mediate this relationship.

Literature review

In today’s complex and dynamic environment, only companies that continuously generate new ideas and designs can sustain their competitive edge. Identifying key activities that influence the innovation process is, therefore, a fundamental responsibility of company managers (Hudson, 2013; Shea, 2023). One of the critical factors expected to drive innovation in companies is the protection of IPR at both national and international levels. Safeguarding knowledge and innovations derived from R&D across various sectors—including industrial, artistic, and cultural—encourages innovation and contributes significantly to long-term economic growth and development (Liu et al., 2024).
Empirical studies further highlight the complex relationship between IP protection and innovation. Yang et al. (2024) found that IP system reforms have a stronger impact on innovation in cities with lower scientific and educational levels compared to central cities with more advanced knowledge infrastructures. Hudson and Minya (2013) argued that this relationship is non-linear, varying based on economic and institutional factors. Sweet and Maggio (2015), using a global sample, found that stronger IP protection enhances innovation only in countries with above-average levels of development and economic complexity. Similarly, Akrami Rad et al. (2023) demonstrated that IP plays a multidimensional role in attracting foreign investment, while Aghaei (2016) found that, although the relationship between IPR and innovation is direct across all countries, it is notably stronger in those with higher per capita income.
A review of domestic studies reveals that none have specifically examined the impact of IP protection on corporate innovation. Therefore, the findings of this study can provide valuable insights for policymakers, standard-setters, and legislators, enabling them to enhance national intellectual property protection strategies by better understanding their positive and negative implications for corporate innovation.

Methodology

This study is classified as applied research. The statistical population consists of all companies listed on the Tehran Stock Exchange between 2018 and 2022. The study period is limited to 2022, as data on IPR protection for Iran is only available up to that year.
Data for the analysis were collected from company financial statements, while information on IPR protection was sourced from the WIPO website. The final analysis was conducted using EViews 11 software.

Results

The purpose of this study was to examine the impact of IP protection on corporate innovation, with a focus on the mediating role of R&D expenditure and financial constraints. The results of the hypothesis testing indicate that IP protection fosters innovation in companies. Additionally, the mediating effects of R&D expenditure and financial constraints were confirmed, highlighting their influence on the relationship between IP protection and innovation.

Discussion

One of the most critical factors influencing innovation is the protection of IPR. However, economists remain divided on the precise relationship between IPR protection and innovation.
A systematic and influential theory of innovation is presented by Schumpeter, whose concept of creative destruction suggests that IPR protection grants innovators a temporary monopoly, preventing others from imitating their inventions. This exclusivity incentivizes competitors to develop more advanced technologies, thereby fostering continuous technological progress and innovation.
Conversely, Helpman (1993) argues that while stronger IPR initially stimulates innovation, in the long run, it may lead to a decline in real innovation rates. As developed countries continue producing goods based on older technologies, resources that could be allocated to innovation and research are instead diverted toward production, ultimately reducing the overall rate of innovation.
A more recent perspective comes from Moskus (2000), who highlights a trade-off between knowledge dissemination and innovation incentives. While stronger IPR protection provides a robust incentive for R&D, it simultaneously restricts access to knowledge, potentially limiting opportunities for broader innovation and technological diffusion.

Empirical Findings

The findings of this study support the first research hypothesis, confirming that IP protection significantly influences corporate innovation. These results align with previous studies by Yang et al. (2024), Hudson and Minya (2013), and Sweet and Maggio (2015). These researchers argue that IPR protection enhances the value of R&D investments, particularly in sectors such as environmental protection, where innovation plays a crucial role. When IP protection is weak, firms risk having their innovations imitated by competitors, leading to reduced innovation efficiency, lower profits, and diminished motivation for further R&D.
Additionally, the results of the second and third research hypotheses are consistent with the findings of Liu et al. (2024) and Liu et al. (2022). This study confirms that R&D investment and corporate innovation are influenced by information asymmetry. When foreign investors lack sufficient knowledge of a company’s innovation achievements, they may struggle to assess the commercial value of its technologies. However, if companies fully disclose their R&D advancements, competitors may exploit this knowledge and imitate their innovations, reducing firms' incentives to share information. Consequently, many companies choose to limit disclosure of their innovation activities to maintain a competitive advantage (Lily et al., 2017; Liu et al., 2022).
 

Conclusion

In the face of investment uncertainty, investors often rely on a company’s patented technological achievements as a key indicator of its development potential. Higher-quality inventions tend to attract investment more easily, as they signal a greater likelihood of success and return. Strengthening IPR protection can, therefore, reduce the financial constraints faced by companies, enabling them to invest more heavily in innovation and advance their technological capabilities.
The findings of the present study align with this reasoning, as the first proposed hypothesis confirms that strengthening IPR protection plays a critical role in promoting organizational innovation.
Regarding the second hypothesis, the study reveals that R&D expenses serve as a mediating factor in driving innovation through the protection of intellectual property rights. In other words, investment in R&D is a crucial mechanism through which IPR protection fosters innovation.
Furthermore, the results of the third hypothesis demonstrate that financial constraints negatively mediate the relationship between IPR protection and organizational innovation. When companies face funding restrictions, their ability to leverage IPR protection to drive innovation is diminished, thereby inhibiting the development of new technologies and innovative solutions.

Keywords

• : Financing Constraints
• Innovation
• Protection of Intellectual Property Rights
• Research and Development Expenditure

Main Subjects

• Financial Accounting