Patents, profitability, liquidity and firm size

Much has been written on the need for a more rapid rate of technical progress in the British economy but there is little in the way of hard facts on the characteristics of firms that innovate and those that do not, on the factors determining a firm's rate of innovation, and on the relationship between innovation and profitability. The present paper attempts to give some quantitative content to the discussion by examining the relationship between a firm's size, its profitability, its liquidity and the number of patents obtained in three United Kingdom industries - Chemicals, an Electrical Engineering and Electronics grouping, and Machine Tools. These three industries were chosen because they are technologically based and so place heavy emphasis on research and development. The plan of the paper is as follows. Section 1 discusses the patents data and the use of patents as an indicator of innovative activity. The size characteristics of patenting and non-patenting firms are considered in Section 2. Section 3...