Patent trolls and capital structure decisions in high-tech firms

Ran Duan

Journal of Banking & Finance, 2023, vol. 155, issue C

Abstract: Under the growing threat of patent trolls, high-tech firms face substantial legal fees, increased cash flow volatility, and greater expected costs of distress. I show that the exposure to patent litigation leads to overly conservative capital structures in high-tech firms. My identification exploits a 2017 U.S. Supreme Court decision limiting the ability of patent trolls to seek favorable venue outside the defendant's incorporating state. Following the decision, firms incorporated in states with strong anti-patent troll laws increased leverage. The effects are driven by high-tech firms, the premier targets of patent trolls. Decreased cash flow volatility, especially in treated firms closer to financial distress, provides a key economic channel for my results.

Keywords: Patent trolls; NPEs; Capital structure; Innovation; Patents; Law and finance (search for similar items in EconPapers)
JEL-codes: G32 K40 O30 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:155:y:2023:i:c:s0378426623001851

DOI: 10.1016/j.jbankfin.2023.106987

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