Asset Non-Specificity and Patent Collateral
61 Pages Posted: 15 Aug 2015 Last revised: 27 Aug 2019
Date Written: August 31, 2014
This study examines the relationship between patent non-specificity and patent pledgeability. Using a unique dataset from the USPTO, I track patent ownership changes for public U.S. firms between 1990 and 2012. I provide a method for measuring patent non-specificity at the portfolio level. Consistent with the idea that non-specificity makes a firm's assets useful as collateral, I find that patents with general uses are more likely to be pledged as collateral in loan contracts. Specifically, for technology firms that experienced unexpected declines in their patent portfolio values after the 2001 recession, patent non-specificity was the key determinant of patent pledgeability. Moreover, patent non-specificity is an important measure of a firm’s risk, as well as its patent collateral quality. Patent non-specificity is positively associated with a firm’s leverage, controlling for other relevant factors. Similarly, it is positively associated with syndicated loan maturity but negatively correlated with loan pricing, and the correlations are stronger for firms with low asset tangibility.
Keywords: collateral, asset specificity, loan, patent, debt capacity, financial constraints
JEL Classification: G32, G33
Suggested Citation: Suggested Citation