Design innovation and firm performance: Evidence from patent subtype analysis

This paper investigates the differential impacts of various subtypes of design patents on firm financial performance, as measured by return on assets (ROA), using a panel dataset of 8671 firm-year observations from Chinese listed firms over the period 2017 to 2023. We disaggregate design innovation into four subtypes and construct a composite Design Index via principal component analysis. Employing both fixed effects and random effects panel regressions, we find that each design-innovation subtype, as well as the composite index, exerts a positive and statistically significant effect on ROA. Moreover, we demonstrate that sales growth mediates this relationship, suggesting that design innovation enhances asset productivity primarily through revenue expansion. Robustness checks using one-year lagged patent variables confirm the persistence of these effects and mitigate endogeneity concerns. Our findings highlight the strategic value of not only the volume but also the collaborative and temporal dimensions of design patenting in driving firm profitability.