LEVERAGING INTELLECTUAL PROPERTY:
THE VALUE OF HARMONIZED ENFORCEMENT REGIMES
w/ Andrej Gill -- Access the current draft here.
We provide new evidence on how intellectual property (IP) rights support external debt financing by investigating exogenous variation in patent right enforcement. Deploying a unique, large-scale sample of European firms, we exploit the 2004 EU Enforcement Directive, a major legislative change strengthening IP rights across Europe, as identifying event. Results show that firms with valuable patent portfolios disproportionally increase debt financing by about 21%. Effects are particularly pronounced for private SMEs, ex-ante financially constrained firms, and in competitive environments. Adding previously undisclosed patent collateral information provides suggestive evidence that enhanced IP enforcement benefits debt financing beyond a mere collateral channel.
INTELLECTUAL PROPERTY AS LOAN COLLATERAL
w/ Laurie Ciaramella & Leo Leitzinger
We exploit unique administrative data from France to shed first light on the use of different types of intellectual property (IP) rights as loan collateral. Specifically, we study trademarks, patents, and designs to show that the majority of IP-backed loans involve trademarks (81%) and well-established SMEs (77%) pledging selected, redeployable, and valuable IP rights. Further, IP loans entail large positive effects on firms' use of debt and subsequent growth. We confirm the importance of IP collateral for attracting debt by investigating a major policy change. Our results highlight the large economic potential of IP pledges, especially for intangible-rich, financially constrained firms.
THE LABOR ECONOMICS OF INVENTING:
ESTIMATING THE MARGINAL INCOME PER PATENT
w/ D. Harhoff, P. Momtaz
The majority of inventions generated in modern economies are developed by employed individuals on the behalf of their employer. This paper provides first representative evidence on the marginal income per patent (MIP) to employed inventors. To this end, we explore high-detail, administrative data on a representative sample of 148,743 unique inventors in Germany linked to their income and patenting activities. We find the average inventor earns a MIP of 7.42% per annum. These results are particularly pronounced for high quality patents and in firms for which the marginal contribution of patents is high. Importantly, we find that firms that pay above-average premium, recruit a higher number of high quality inventors. Our analyses shed light on the private value of inventions to its individual inventors and highlight important implications thereof for labor market mobility.
SMALL AND VULNERABLE? FIRM SIZE AND FINANCING CONSTRAINTS DYNAMICS
w/ Pantelis Karapanagiotis & Øivind A. Nilsen
This study analyzes the dynamics of financing constraints of small and medium-sized firms (SME) and large companies over the business cycle. Using high quality, administrative data from Germany in 2006-2015, we quantify financing constraints by means of disequilibrium analyses (i.e., independent of size-based measures) in the context of the Financial Crisis. While we find SMEs on average more likely to face excess demand for bank loans, tightening financing conditions did not affect SMEs but risky borrowers disproportionally. SMEs cope with economic slowdown by persistently building up cash buffers, highlighting that firm size is not a determinant for vulnerability per se.
EARLY-STAGE FINANCING AND STARTUP PERFORMANCE:
EVIDENCE FROM THE U.S. SEED BOOM
w/ Maria Veihl
This paper discloses and examines the occurrence of the “U.S. Seed Boom", i.e., the shift of entrepreneurial financing towards early-stage, small-staked investment deals during the 2010s. Using a large representative sample of entrepreneurial investments in 2005-2015, we analyze the performance of initially seed-backed startups and find the average seed-backed startup to underperform relative to initially VC-backed startups, in terms of IPOs and high-stake acquisitions, the generation of intellectual property rights, and the ability to secure follow-on investments. Results are robust to controlling for founder-, startup, and time-specific characteristics. This difference vanishes for seed-backed startups that reach a subsequent investment stage. We show that the Seed Boom is likely to be caused both by demand- and supply-sided factors, i.e., an increase in cheaper-to-establish business fields and favorable legal changes in the aftermath of the Financial Crisis. Finally, investors follow the Seed Boom as a means to diversify their investment portfolio.
ENABLING OR ACCELERATING?
THE ROLE OF VENTURE CAPITALISTS IN THE INNOVATION LIFECYCLE
w/ A. Gill & N. Gruzdov -- Access current draft here.
This paper investigates how venture capital investors (VCs) affect the generation of intellectual property rights, such as patents, of their portfolio firms. Using a unique European dataset comprising firm-, patent-, and investment-level data on about 9.600 startups between 1995 and 2015, we assess four groups of firms distinguishing VC versus non-VC-backed and previously patenting versus non-patenting firms to analyze the actual functioning of VCs. We deploy multiple econometric techniques to differentiate the (i) enabling and (ii) accelerating role
of VCs: We find (i) previously non-patenting firms to increase patent quantity, while (ii) previously patenting firms increase patent quality. Our study provides new evidence on the role of VCs for firm-level innovation.
THE FORMAL GRANTING OF INTELLECTUAL PROPERTY RIGHTS AND EXTERNAL FINANCING
w/ L. Ciaramella & L. Leitzinger
This study provides the first empirical evidence on the impact of the formal establishment of intellectual property (IP) rights on their use in external financing activities. We leverage novel, high-frequency data on IP collateral from administrative sources in France to examine the timing of IP pledges. We find that the probability of IP pledges rise significantly once a right is formally awarded, suggesting that the granting process delays pledging. For identification, we exploit the launch of online services at the French IP office as exogenous event that amplifies the importance of IP right grants. Our results show that this adoption significantly reduces the delay in pledges. This effect is strongest for firms who benefit disproportionally from the online disclosure, such as firms whose competitors are located in regions with better internet access, for informational opaque borrowers, and for firms without strong bank or lawyer relationships. The earlier timing of financing has important implications at the firm level, as it reduces liquidity constraints, which highlights the importance of formally granting IP rights for financing purposes.”
INTELLECTUAL PROPERTY AS BUSINESS LOAN COLLATERAL:
A TAXONOMY ON INSTITUTIONAL AND ECONOMIC DETERMINANTS
w/ Leo Leitzinger & Uwe Walz -- Access current draft here.
Firms can use their intellectual property rights (IPR) as collateral to secure debt financing. Despite an ongoing shift towards a more technology-based economy, collateralization of IPR is still trailing behind the use of more traditional collateral asset classes. In this paper, we develop a new taxonomy on the key determinants of IPR collateralization. The taxonomy defines two pillars governing the use of IPR collateral that distinguish between institutional and economic factors. The institutional pillar covers contract law, IPR registries, and banking regulation. We apply the taxonomy to the current legal and economic state in several industrialized economies to identify potential impediments to IPR-backed borrowing activities. The economic pillar constitutes the influence of IPR characteristics on the trade-off between economic costs and benefits of IPR collateralization. We propose that IPR collateral can have significant advantages regarding signaling, agency issues, and pledgeable income. Based on these considerations we derive several testable hypotheses under which circumstances IPR collateral might be particularly suited to attract debt financing. Taken together, our taxonomy can be viewed as the foundation for future research on IPR as business loan collateral.
NO PRESSURE, NO DIAMONDS? FINANCING CONSTRAINTS AND THEIR QUANTITY-QUALITY EFFECTS ON INVENTIONS
This paper explores the effect of policy-induced reductions in financing constraints on the quantity and quality of firm-level inventions, namely patents. To study this, I utilize exogenous variation in access to funding arising from the staggered adoption of a major EU policy initiative harmonizing financial markets across member states. Relaxing financing constraints boosts firms' patent filings but also leads to a modest decline in patent quality along several dimensions, suggesting negative marginal returns. However, effects on patent quality are reversed for firms with low initial patenting activities, which highlights the relevance of proper funding to spur commercialization of early-stage inventions.
- The Hidden Part of the Market for Technologies: Evidence from Startup Patent Sales (w/ P. Momtaz)
- Financial Networks and Resilience to Crises in post-WWI Germany (w/ M. Liebald)
European Patent Office ARP programm (link)