RESEARCH PROJECTS
LEVERAGING INTELLECTUAL PROPERTY:
THE VALUE OF HARMONIZED ENFORCEMENT REGIMES
w/ Andrej Gill -- Access the current draft here -- Revise & Resubmit Journal of Banking & Finance.
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 -- Access the current draft here.
This study provides a first comprehensive picture of the collateralization of intellectual property (IP), its determinants, and its effect on firm trajectories. We create a unique, novel dataset and show that a broad set of firms use trademarks (72%), patents (26%), and designs (2%) to secure debt. Firms pledge selected IP assets with high private value to its owner and high redeployability. IP pledges significantly raise firms' debt ratios, a result that is robust to exogenous variation in the pledgeability of tangible collateral and strongest for small, financially constrained firms. IP collateralization is associated with significant increases in firm-level growth.
THE RISE OF EARLY-STAGE FINANCING IN THE US AND STARTUP PERFORMANCE
w/ Maria Veihl -- Access the current draft here.
This paper examines startup performance against the background of a significant shift in the US entrepreneurial financing landscape during the early 2010s. We study a large representative sample of nascent ventures that receive small-staked first round investments from equity funds, whose appearance quadrupled between 2010 and 2013. Despite their inherent riskiness, these startups performed equally well compared to both other VC-backed US startups and a similar set of non-US startups from economies with comparable VC markets. We show that market-based and policy-related factors contributed to the shift towards smaller investments targeting increasingly young startups, highlighting their importance in shaping entrepreneurial financing.
FINANCIAL MARKET INTEGRATION AND THE EFFECTS OF FINANCING CONSTRAINTS
ON INNOVATION
Access current draft here -- As part of the project Financing Innovation in Europe, this research was awarded funding under the Academic Research Programme of the European Patent Office (see media coverage: here)
This paper provides new evidence on the effects of financial market integration on firm-level external debt financing and subsequent inventive activities. I exploit the implementation of the Financial Services Action Plan (FSAP) as an exogenous event that significantly raised financial integration in Europe during the 2000s. Estimates show large positive effects of the FSAP on firms' use of debt and subsequent patent filings but moderate adverse effects along different qualitative dimensions of patenting, particularly for ex-ante patenting-intensive firms. In contrast, the FSAP significantly raised patent quantity and quality for firms with low pre-treatment patenting intensities. These findings highlight the key role of a conducive financing environment for inventive activities but also reveal unintended effects of policy-induced improvements in access to financing in the spirit of a quantity-quality tradeoff in patenting activities. Overall, this paper discloses crucial insights into the role of firms' financing environment for inventive activities, improving our understanding of effective policy design at the governmental and firm levels.
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.
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 capitalists (VCs) affect the creation of intellectual property rights in their portfolio firms. Using a novel dataset comprising European firm-, patent-, and investment-level information on approximately 9,600 firms between 1995 and 2015, we distinguish between an enabling and accelerating effect of VCs, depending on the targets’ pre-VC patenting activities. While VC investments overall are associated with increased patenting activity, this varies significantly depending on the type and timing of effects. We find a positive enabling effect, both on the long- and short-term, suggesting that investors foster innovation but also push targets towards rapid commercialization. Further, we only detect an accelerating effect for specifically involved VCs. These results do not only highlight the important role VCs can have on firm dynamics but also emphasize the need for taking a nuanced view when evaluating the implications of VC investments.
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.
THE FORMAL GRANTING OF INTELLECTUAL PROPERTY 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. We exploit the launch of online services at the French IP office in 2006 as identifying event that exogenously amplified the importance of IP right grants. Our results show that this adoption significantly reduces the delay in pledges after grant. This effect is strongest for firms whose competitors are located in regions with better ex ante 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.
As a promising strategy, firms can use their intellectual property rights (IPR) as collateral to secure debt financing. Despite an ongoing shift to a more technology-based economy, the collateralizing of IPR is still trailing behind the use of more traditional asset classes. In this paper, we develop a new taxonomy on the key determinants of using IPR as collateral. The taxonomy defines two pillars that govern the use of IPR collateral that distinguish between institutional and economic determinants. The institutional determinants cover contract law, IPR registries, and banking regulation. The economic determinants constitute the influence of IPR characteristics on the trade-off between the economic costs and benefits of collateralizing IPR. We propose that IPR collateral can have significant advantages regarding signaling, agency issues, and the creation of pledgable income. We apply the derived taxonomy to the legal and economic status quo in several industrialized economies to identify potential impediments to IPR-backed debt financing. Taken together, our taxonomy can be viewed as the foundation for future research on IPR as loan collateral for businesses, both in the fields of law and economics.
EARLY-STAGE PROJECTS
- 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)
- Learning from Abroad: Evidence from the German Accelerator Programm
MEDIA COVERAGE
European Patent Office ARP programm (link)