LEVERAGING INTELLECTUAL PROPERTY:
THE VALUE OF HARMONIZED ENFORCEMENT REGIMES
w/ Andrej Gill -- Access the current draft here.
Leveraging intellectual property rights for financing purposes is a valuable firm strategy in an increasingly knowledge-driven economy. In this paper, we study the effects of enhanced patent right enforcement on firms' use of external debt as a previously unexplored benefit of an effective and harmonized enforcement framework. We exploit the staggered implementation of the 2004 EU Enforcement Directive as a source of exogenous variation in patent right enforcement. To identify the effect of stronger and more harmonized enforcement, we use additional variation in observable firm characteristics prior to the change in law. Deploying a unique, large-scale sample of European firms, we find that patenting firms significantly increase their use of debt financing after the legal change. We estimate a disproportional 21\% increase in debt-ratios for firms with above-median patent portfolio values. Moreover, the increase in debt-ratios is pronounced in countries with more legal amendments, for firms in more competitive environments, and for ex-ante financially constrained firms. The effects are strongest for private SMEs, which benefit from lower costs of debt. We use previously undisclosed data on patent collateral and find suggestive evidence that enhanced patent right enforcement increases the signaling value of patent portfolios. Taken together, our analysis demonstrates the potential of firms' patenting activities to access external financing. Additionally, our findings highlight the relevance of the enforcement regime for leveraging intellectual property rights for financing purposes.
INTELLECTUAL PROPERTY AS LOAN COLLATERAL: EVIDENCE FROM FRANCE
w/ Laurie Ciaramella & Leo Leitzinger -- Access the current draft here.
We use novel administrative data from France to provide first systematic evidence on the use of intellectual property (IP) rights, i.e., trademarks, patents, and designs, as loan collateral, and study how formal IP right publications affect collateralization by mitigating information frictions associated with IP rights' uncertainty. We show that the majority of IP-backed loans involve trademarks and are granted to SMEs. We document a large positive effect of IP pledges on firms' use of debt and subsequent real economic activities. We exploit the launch of online repositories at the French IP office in 2006 as an exogenous shock to accessing publication information for trademarks. We find a positive effect on the timing of collateralization, the effect being more salient for firms operating in highly competitive environments, with competitors located in regions with better ex-ante broadband internet access, and for informationally opaque borrowers. Our results highlight that uncertainty over IP can delay its use to secure loans and disclose new evidence on the ability of IP rights to enhance access to finance.
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.
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.
EARLY-STAGE FINANCING AND STARTUP PERFORMANCE:
EVIDENCE FROM THE U.S. SEED BOOM
w/ Maria Kurakina
This paper examines the implications for startup performance of the 'U.S. seed boom', i.e., the shift of entrepreneurial financing towards individual early-stage investment deals during the 2010s. Using a large representative sample of entrepreneurial investments in 2005-2018, we confirm the staging of financing by seed-funds into earlier, more frequent, and smaller rounds. Regarding several firm-level characteristics, initially seed-backed firms are surprisingly similar compared to those ventures that initially receive venture capital financing, which occurs at later stages but includes higher deal volumes. We compare a matched sample of these two firms types, controlling for founder-, startup, and time-specific characteristics, and find seed-financing to be associated with lower probabilities of IPOs but equivalent (and earlier) rates of successful exits via acquisitions. Conditional on eventually receiving venture capital in subsequent rounds, we observe seed-backed firms to be significantly more likely to raise large funding volumes over their lifespan. In terms of generating intellectual property rights, both firm types are equally active. These results suggest potential differences in the organizational goals of seed- vs. VC-backed startups.
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.
SMALL AND VULNERABLE? FINANCING CONSTRAINTS DURING ECONOMIC CRISES
w/ Pantelis Karapanagiotis & Øivind A. Nilsen
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.
- Green Capitalists: the Effects of Extreme Weather Events on VC Investments (w/ F. Bracht)
- The Labor Economics of Inventing (w/ P. Momtaz & M. Shi)
- The Hidden Part of the Market for Technologies: Evidence from Startup Patent Sales (w/ P. Momtaz)
- A New Metrics on Patent Market Valuation (w/ P. Momtaz)
- Financial Networks and Resilience to Crises in post-WWI Germany (w/ M. Liebald)
European Patent Office ARP programm (link)