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Patents as quality signals? The implications for financing constraints on R&D

Dirk Czarnitzki, Bronwyn Hall and Hanna Hottenrott ()

No 14-023, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: Information about the success of a new technology is usually held asymmetrically between the research and development (R&D)-performing firm and potential lenders and investors. This raises the cost of capital for financing R&D externally, resulting in financing constraints on R&D especially for firms with limited internal resources. Previous literature provided evidence for start-up firms on the role of patents as signals to investors, in particular to Venture Capitalists. This study adds to previous insights by studying the effects of firms' patenting activity on the degree of financing constraints on R&D for a panel of established firms. The results show that patents do indeed attenuate financing constraints for small firms where information asymmetries may be particularly high and collateral value is low. Larger firms are not only less subject to financing constraints, but also do not seem to benefit from a patent quality signal.

Keywords: Patents; Quality Signal; Research and Development; Financial Constraints; Innovation Policy (search for similar items in EconPapers)
JEL-codes: O31 O32 O38 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-com, nep-cse, nep-cta, nep-ent, nep-ind, nep-ino, nep-ipr, nep-pr~, nep-knm, nep-sbm and nep-tid
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Related works:
Journal Article: Patents as quality signals? The implications for financing constraints on R&D (2016) Downloads
Working Paper: Patents as Quality Signals? The Implications for Financing Constraints on R&D (2014) Downloads
Working Paper: Patents as Quality Signals? The Implications for Financing Constraints on R&D (2014) Downloads
Working Paper: Patents as quality signals? The implications for financing constraints on R&D (2014) Downloads
Working Paper: Patents as quality signals? The implications for financing constraints on R&D (2014) Downloads
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