The Relation Between Patent Pledgeability and Credit Rationing

Aineas Mallios (), Ted Lindblom () and Stefan Sjögren ()
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Aineas Mallios: University of Gothenburg
Ted Lindblom: University of Gothenburg
Stefan Sjögren: University of Gothenburg

Chapter Chapter 11 in New Challenges for the Banking Industry, 2023, pp 283-303 from Palgrave Macmillan

Abstract: Abstract We analyze the economic issue raised when financial intermediaries refuse to supply credit to a borrower even at a higher rate than that posted by lenders. We suggest that patent-backed loans can be used as a contracting device to reduce credit rationing in loan markets characterized by imperfect information. Patents have become among the most valuable assets of firms in high-technology industries. They determine the production of goods and contain information about the firms’ credit quality. Patents can also be used by banks to screen borrowers. We provide a theoretical foundation showing that patents used as collateral may reduce the level of information asymmetry in loan markets and facilitate also bank lending. Using a setup of financial intermediation with capital constrained entities and imperfect information, we suggest that patent pledging can be used to minimize credit rationing. This may lead to more investment in innovation and more growth.

Keywords: Banks; Financing; Credit rationing; Patents; Collateral (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-3-031-32931-9_11

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DOI: 10.1007/978-3-031-32931-9_11

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