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How Does Firms’ Innovation Disclosure Affect Their Banking Relationships?

Farzad Saidi () and Alminas Žaldokas ()
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Farzad Saidi: Questrom School of Business, Boston University, Boston, Massachusetts 02215
Alminas Žaldokas: Department of Finance, Hong Kong University of Science and Technology Business School, Kowloon, Hong Kong

Management Science, 2021, vol. 67, issue 2, 742-768

Abstract: Firms face a trade-off between patenting, thereby disclosing innovation, and secrecy. We show that this trade-off interacts with firms’ financing choices. As a shock to innovation disclosure, we study the American Inventor’s Protection Act that made firms’ patent applications public 18 months after filing, rather than when granted. We find that such increased innovation disclosure helps firms switch lenders, resulting in lower cost of debt, and facilitates their access to syndicated-loan and public capital markets. Our evidence lends support to the idea that public-information provision through patents and private information in financial relationships are substitutes, and that innovation disclosure makes credit markets more contestable. This paper was accepted by Gustavo Manso, finance.

Keywords: innovation disclosure; credit markets; patenting; private information (search for similar items in EconPapers)
Date: 2021
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