NO PRESSURE, NO DIAMONDS? FINANCING CONSTRAINTS AND THEIR QUANTITY-QUALITY EFFECTS ON INVENTIONS
Access the current draft here.
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.
BORROWING AGAINST THE (UN)KNOWN: THE VALUE OF PATENT PORTFOLIOS
w/ Andrej Gill -- Access the current draft here.
We provide new evidence on the importance of intellectual property for attracting external financing. By exploiting unique institutional features, we measure firm-level patent portfolio values in a novel way. Findings suggest that expenses on patenting fees resembling a lower bound of portfolios’ expected market value. Armed with this measure, we show that patent portfolio values improve firms’ debt capacity. Results apply for a large scale of firms but are strongest for medium-sized enterprises. For identification, we utilize exogenous variation in patent value arising from the staggered adoption of a major EU reform which enhanced patent right enforcement across member states.
SMALL AND VULNERABLE? FINANCING CONSTRAINTS DURING ECONOMIC CRISES
w/ Pantelis Karapanagiotis & Øivind A. Nilsen -- Access the current draft here.
This study investigates how SMEs and larger firms' financing conditions and real behavior change during periods of severe decline in economic activity. Literature suggests a higher vulnerability of small firms which is constituted in the various proxies of financing constraints which consider size as one key ingredient. Using these measures makes comparing effects on different size categories of firms virtually impossible. By exploiting high quality, proprietary data from official sources on German firms, we are able to study differential effects between small and large firms without depending on size as a measure of financial restrictiveness itself. Our analysis uses the Financial Crisis of 2008 as an exogenous event adversely affecting the banking market. We show that SME are on average more likely to face excess demand for bank loans as compared to large firms. Contrasting theoretical predictions, however, results further suggest that the worsened financing conditions did not affect SME in a disproportionate manner. It is rather the availability of non-bank sources and firms' riskiness determining the degree of financing constraints. Our results suggest that it is more efficient to address the underlying causes of (small) firms' vulnerability during economic slowdowns instead enhancing access to funding for SME in general.
FINANCIAL INTEGRATION, FINANCING CONSTRAINTS, AND INNOVATION IN EUROPE:
IS MORE BETTER?
w/ Uwe Walz & Jan Krzyzanowski -- Access the current draft on request.
A large number of policy initiatives in the European Union and its member states are grounded in the assumption that there is a gap between the demand and supply for financial resources to fund innovations. We approach this assumption by analysing not only how innovations are financed but also whether changes in the availability of funding affect the type and amount of inventions firms actually introduce to the market. In contrast to most existing studies, we focus on firms domiciled in Europe. For this purpose, different European policy initiatives are utilized to analyze the effects of firms’ access to finance on their patenting activities. To provide a comprehensive picture, two complementing initiatives are considered in a European context: i) policies which entailed a negative impact on firms’ access to external sources of finance (EBA capital exercise) as well as ii) those helping to mitigate financing constraints (FSAP). The findings indicate that more finance does not enhance innovative activity per se and less finance is not harmful for firms’ outcomes of their innovative activities by itself. Against the background of our results, we derive several policy recommendations.
Media coverage: here (EPO ARP Programm)
PRELIMINARY RESEARCH PROJECTS
- IP-backed Lending: Moving beyond Patent Collateral (w/ L. Ciaramella & L. Leitzinger)
- Cashflow Lending and Economic Resilience (w/ L. Ciaramella & L. Leitzinger)
- Venture Capital as Driver for Inventive Activities (w/ A. Gill & N. Gruzdov)
- Which Bride to Marry? VC Preferences for Patent Characteristics (w. M. Kurakina)
- Constrained but creative? Patenting in the German Democratic Republic