How Does Firms’ Innovation Disclosure Affect Their Banking Relationships?
70 Pages Posted: 15 Jan 2016 Last revised: 19 Sep 2019
Date Written: June 4, 2019
Firms face a trade-off between patenting, thereby disclosing innovation, and secrecy. We show that this trade-off interacts with firms’ financing choices. As a shock to innovation disclosure, we study the American Inventor’s Protection Act that made firms’ patent applications public 18 months after filing, rather than when granted. We find that such increased innovation disclosure helps firms switch lenders, resulting in lower cost of debt, and facilitates their access to syndicated-loan and public capital markets. Our evidence lends support to the idea that public-information provision through patents and private information in financial relationships are substitutes, and that innovation disclosure makes credit markets more contestable.
Keywords: innovation disclosure, credit markets, patenting, private information
JEL Classification: G20, G21, O31
Suggested Citation: Suggested Citation