Patents as Quality Signals? The Implications for Financing Constraints on R&D

39 Pages Posted: 3 Mar 2014 Last revised: 29 Jan 2015

See all articles by Dirk Czarnitzki

Dirk Czarnitzki

Centre for European Economic Research (ZEW); Catholic University of Leuven (KUL)

Bronwyn H. Hall

University of California at Berkeley; National Bureau of Economic Research (NBER); Institute for Fiscal Studies (IFS); Max Planck Law Network - Max Planck Institute for Innovation and Competition

Hanna Hottenrott

Technische Universität München (TUM)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2014

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.

Suggested Citation

Czarnitzki, Dirk and Hall, Bronwyn H. and Hottenrott, Hanna, Patents as Quality Signals? The Implications for Financing Constraints on R&D (February 2014). NBER Working Paper No. w19947, Available at SSRN: https://ssrn.com/abstract=2403671

Dirk Czarnitzki (Contact Author)

Centre for European Economic Research (ZEW) ( email )

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Germany

Catholic University of Leuven (KUL) ( email )

Faculty of Economics and Business
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Bronwyn H. Hall

University of California at Berkeley ( email )

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United States

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National Bureau of Economic Research (NBER)

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Institute for Fiscal Studies (IFS)

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Max Planck Law Network - Max Planck Institute for Innovation and Competition

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Hanna Hottenrott

Technische Universität München (TUM) ( email )

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Munich, DE 80333
Germany

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