Legal Protection of Brand Names and Creditworthiness: Evidence from the 1996 Federal Trademark Dilution Act

To examine how legal protection of brand names influences firms’ creditworthiness, we construct a comprehensive database of public firms’ bank loans as well as their trademark collateral. We explore the 1996 Federal Trademark Dilution Act (FTDA) that enhanced trademark protection to perform difference-in-differences analysis, and find that firms with better protected trademarks not only pay significantly lower interest rates, but also use more trademark collateral after the FTDA. Moreover, firms with better trademark protection reveal lower cash flow volatility and higher profitability after the FTDA. Our evidence indicates that enhanced legal protection of brand names reduces firms’ costs of borrowing.

Keywords: intellectual property; creditworthiness; trademark; brand names; bank loans; collateral; debt financing

JEL Classification: G12; G21; O34; K11

Suggested Citation: Suggested Citation

Chiu, Wan-Chien and Hsu, Po-Hsuan and Wang, Chih-Wei, Legal Protection of Brand Names and Creditworthiness: Evidence from the 1996 Federal Trademark Dilution Act (February 7, 2022). Available at SSRN: https://ssrn.com/abstract=3418210 or http://dx.doi.org/10.2139/ssrn.3418210