Intellectual Property Protection and Financial Markets: Patenting versus Secrecy

Nishant Dass, Vikram Nanda, Haemin Dennis Park and Steven Chong Xiao

Review of Finance, 2021, vol. 25, issue 3, 669-711

Abstract: Firms rely on patenting and trade secrecy to protect their intellectual property. We study how changes in the trade-off between patenting and secrecy affect firms’ stock liquidity and financing outcomes. We show that an international trade agreement (TRIPS) that strengthened patent protection led to a 10.2% increase in patenting, accompanied by a 14.0%–27.1% improvement in stock liquidity for firms in patent-reliant industries. This in turn allows the affected firms to increase equity financing by 1.9% and reduce leverage by 5.9%. Our results suggest that policies that promote use of patenting over secrecy can reduce informational frictions in equity markets.

Keywords: Trade secrets; Patents; Intellectual property; Stock liquidity; TRIPS (search for similar items in EconPapers)
JEL-codes: G14 G30 O31 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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