Patents as Substitutes for Relationships

Farzad Saidi and Alminas Zaldokas

No 11580, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Firms face a trade-off between patenting, thereby disclosing innovation, and secrecy. In this paper, we show how such public-information provision through patents acts as a substitute for private information acquired in financial relationships. As a shock to innovation disclosure, we use the American Inventor's Protection Act that made the content of firms' patent applications public within 18 months after filing, rather than at the grant date. Firms in industries that experienced a greater change in the publicity of their patent applications were significantly more likely to switch lenders. We also consider the reverse link of the substitution relationship, and explore the impact of improved lender informedness following the creation of universal banks on firms' patenting behavior. We find that firms patent less, without negatively altering their investment in innovation and its outcomes, such as new-product announcements.

Keywords: Patenting; Loan contracting; Information acquisition; Corporate disclosure; Innovation (search for similar items in EconPapers)
JEL-codes: G20 G21 O31 (search for similar items in EconPapers)
Date: 2016-10
New Economics Papers: this item is included in nep-cse, nep-ino, nep-ipr and nep-sbm
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Citations: View citations in EconPapers (5)

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