How Does Firms’ Innovation Disclosure Affect Their Banking Relationships?

69 Pages Posted: 15 Jan 2016 Last revised: 6 Jun 2019

See all articles by Farzad Saidi

Farzad Saidi

Swedish House of Finance; Centre for Economic Policy Research (CEPR)

Alminas Zaldokas

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: June 4, 2019

Abstract

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

Saidi, Farzad and Zaldokas, Alminas, How Does Firms’ Innovation Disclosure Affect Their Banking Relationships? (June 4, 2019). Available at SSRN: https://ssrn.com/abstract=2715925 or http://dx.doi.org/10.2139/ssrn.2715925

Farzad Saidi

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Alminas Zaldokas (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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