LEVERAGING INTELLECTUAL PROPERTY:
THE VALUE OF HARMONIZED ENFORCEMENT REGIMES
w/ Andrej Gill -- Access the current draft here. Revise & Resubmit at the Journal of Banking & Finance
This study examines the role of intellectual property (IP) law as a determinant for external debt financing of innovative firms. For identification, we exploit exogenous variation in patent right enforcement arising from the 2004 EU Enforcement Directive. This major policy reform strengthened IP rights and, thus, raised patent owners' asset position. We find that patenting firms significantly increase their use of debt and benefit from lower interest rates in response to the amendment, especially if they own valuable patent portfolios. These effects are most pronounced for relatively small and financially constrained firms, emphasizing the importance of the legal framework in fostering debt financing activities of innovation-oriented firms.
FINANCIAL MARKET INTEGRATION AND THE EFFECTS OF FINANCING CONSTRAINTS
Access current draft here -- this research was awarded under the Academic Research Programme of the European Patent Office ("Financing Innovation in Europe", media coverage: here) - Revise & Resubmit at Research Policy
This paper investigates the effects of financial market integration on firm-level external debt financing and subsequent inventive activities. To this end, I exploit the implementation of the Financial Services Action Plan (FSAP) as a positive exogenous shift integrating European banking markets during the 2000s. My findings show that higher integration relaxes financing constraints, with significant positive effects on firms' use of debt and interest burden, particularly for ex-ante financially constrained firms. Moreover, financial integration spurs innovative activities in terms of patenting of those firms that benefited from the reforms. Considering a variety of qualitative dimensions shows that lifting financing constraints improves patent quality for a subset of previously constrained firms with low ex-ante patenting intensities (entrants) while adversely affecting the inventive output of incumbent patenters in the spirit of a quantity-quality tradeoff. These findings highlight the key function of a conducive financing environment for inventive activities but also reveal unintended limitations of policy-induced improvements in access to financing.
ENABLING OR ACCELERATING?
INNOVATION AND THE DIFFERENT ROLES OF VENTURE CAPITALISTS
w/ Andrej Gill & Nina A. Gruzdov -- Access current draft here - Revise & Resubmit at Research Policy.
This paper investigates two pivotal roles in how venture capitalists (VCs) affect their targets' innovative activities. To this end, we explore the timing of patenting around initial VC investments using a novel dataset that combines European firm-, patent-, and investment-level information on first-round targets between 1995 and 2015. In matched sample regressions, we find a positive (enabling) effect of VCs on the quantity and quality of patenting activities, i.e., for targets without pre-VC patenting activity. Results apply persistently over time, suggesting that VCs push for commercialization while also driving sustained patenting. We further find a positive (accelerating) effect for targets with pre-VC patenting, but only for a subset of specifically involved, experienced investors. Multiple tests suggest that selection effects do not drive our findings. The findings improve our understanding of VCs' roles in startup innovation processes and emphasize the diverse effects VCs can have on the trajectories of their target firms.
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 in the context of a previously unexplored but significant transformation in the US entrepreneurial financing landscape, the shift of first-round VC investments towards increasingly younger startups. Unparalleled by other developments, the frequency of such deals quadrupled during the early 2010s, facilitating the survival of promising but high-risk startups. We find that both market- and policy-based factors account for this shift and that targets backed by early-stage investments outperform other VC-backed startups. These results highlight the benefits of continued regulatory improvements that match the evolutions in business activities and thereby stimulate the growth of nascent ventures.
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 LABOR ECONOMICS OF INVENTING:
ESTIMATING THE MARGINAL INCOME PER PATENT
w/ Dietmar Harhoff, Paul P. Momtaz
This paper examines how firms reward their inventors and how compensation differences affect labor mobility. To this end, we first estimate inventors' marginal income per patent (MIP) for a comprehensive set of inventors using a novel link between administrative employee-employer data and patenting information, covering the near-population of German employee inventors. Using a difference-in-differences identification framework with patenting inventors and matched temporary non-patenting inventors, we estimate an average MIP of 5.4% per year, equivalent to an additional annual income over a 12-year accumulation period. Importantly, the MIP varies significantly across patent, inventor, and industry characteristics, with firm-specific factors being the most relevant, accounting for about half of the estimated MIP. Our analyses show how these differences have a direct impact on labor mobility: Firms that pay a higher MIP attract more high-quality inventors, while high-quality inventors can significantly increase their MIP by moving to employers with more complementary assets. These results imply the existence of endogenous sorting in the market for inventive labor, such that the best inventors move to those employers with the best ability to extract the commercial value of their inventions.
SMALL AND VULNERABLE? FIRM SIZE AND FINANCING CONSTRAINTS DYNAMICS
w/ Pantelis Karapanagiotis & Øivind A. Nilsen
This study analyzes the dynamics of external financing constraints in changing market conditions, comparing small and large firms. Using administrative data from Germany, we quantify firm-level financing constraints without relying on size-based measures and using a disequilibrium model. While we find smaller firms on average more likely to face excess demand for loans, tightening financing conditions during the Great Financial Crisis do not affect them disproportionally, but generally risky borrowers. Post-crisis trends in leveraging, profitability, investments and employment are very similar for both types of firms, while smaller firms respond to the economic slowdown by persistently building up cash buffers.
THE FORMAL GRANTING OF INTELLECTUAL PROPERTY AND EXTERNAL FINANCING
w/ Laurie Ciaramella & Leo Leitzinger
This study presents empirical evidence on the impact of the formal establishment of intellectual property (IP) rights on external debt financing. We do so by analyzing the timing of trademark pledges and leveraging novel, high-frequency data on IP collateral from administrative sources in France. For identification, we exploit the launch of online services at the French IP office in 2006–an important event because trademark registration is subject to public opposition–that exogenously strengthened trademark rights by lowering post-registration uncertainty for a subset of firms. We find that post-2006 trademarks are significantly more likely to be used as collateral shortly after registration. The effects are strongest for private SMEs and firms whose competitors are located in regions with better ex-ante broadband internet access, while better banking or lawyer relationships mitigate the effect. The earlier arrival of loans has important implications, as it significantly reduces liquidity constraints of affected firms. These findings imply a previously unexplored benefit of the IP system for external financing purposes: reducing information costs and uncertainty.
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.
OTHER WORK IN PROGRESS:
- Nurturing Startups: A Theoretical and Empirical Appraisal of Venture Clienting (w/ D. Harhoff & D. Kim)
- The Hidden Part of the Market for Technologies: Evidence from Startup Patent Sales (w/ P. Momtaz)
- The Inventor Gender Wage Gap (w/ P. Momtaz)
- The Power of the Great Banks: Banking Concentration and Firm Performance in Imperial Germany (w/ M. Liebald)
- Empowering to Scale Global: Evidence from the German Accelerator Programm (w/ D. Harhoff & D. Kim)