Intellectual Property Protection and Financial Markets: Patenting vs. Secrecy
44 Pages Posted: 21 Aug 2015 Last revised: 30 May 2019
Date Written: May 2019
Firms rely on patenting and secrecy to protect intellectual property. We study how changes in the tradeoff between patenting and secrecy affect firms' stock liquidity and financing outcomes. We show that implementation of an international trade agreement (TRIPS) that strengthened patent protection led to more patenting, accompanied by improvement in the stock liquidity of firms in exporting industries that are reliant on patents. This in turn enhanced the ability of affected firms to raise equity capital and reduce leverage. Our results suggest that policies that promote greater use of patenting over secrecy can help reduce informational frictions in equity markets.
Keywords: Patents, Intellectual Property, Stock Liquidity, TRIPS, AIPA
JEL Classification: G14, G30, O31
Suggested Citation: Suggested Citation