Creating Powerful Indicators for Innovation Studies with Approximate Matching Algorithms. A test based on PATSTAT and Amadeus databases

The lack of firm-level data on innovative activities has always constrained the development of empirical studies on innovation. More recently, the availability of large datasets on indicators, such as R&D expenditures and patents, has relaxed these constrains and spurred the growth of a new wave of research. However, measuring innovation still remains a difficult task for reasons linked to the quality of available indicators and the difficulty of integrating innovation indicators to other firm-level data. As regards quality, data on R&D expenditures represent a measure of input but do not tell much about the ‘success’ of innovative activities. Moreover, especially in the case of European firms, data on R&D expenditures are often missing because reporting these expenditures is not required by accounting and fiscal regulations in some countries. An increasing number of studies have used patents counts as a measure of inventive output. However, crude patent counts are a biased indicator of inventive output because they do not account for differences in the value of patented inventions. This is the reason why innovation scholars have introduced various patent-related indicators as a measure of the ‘quality’ of the inventive output. Integrating these measures of inventive activity with other firm-level information, such as accounting and financial data, is another challenging task. A major problem in this field is represented by the difficulty of harmonizing information from different data sources. This is a relevant issue since inaccuracy in data merging and integration leads to measurement errors and biased results. An important source of measurement error arises from inaccuracies in matching data on innovators across different datasets. This study reports on a test of company names standardization and matching. Our test is based on two data sources: the PATSTAT patent database and the Amadeus accounting and financial dataset. Earlier studies have mostly relied on manual, ad-hoc methods. More recently scholars have started experimenting with automatic matching techniques. This paper contributes to this body of research by comparing two different approaches – the character-tocharacter match of standardized company names (perfect matching) and the approximate matching based on string similarity functions. Our results show that approximate matching yields substantial gains over perfect matching, in terms of frequency of positive matches, with a limited loss of precision – i.e., low rates of false matches and false negatives.