Patents as Substitutes for Relationships

61 Pages Posted: 24 Oct 2016

See all articles by Farzad Saidi

Farzad Saidi

Boston University - Questrom School of Business; 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: October 2016

Abstract

Firms face a trade-off between patenting, thereby disclosing innovation, and secrecy. In this paper, we show how such public-information provision through patents acts as a substitute for private information acquired in financial relationships. As a shock to innovation disclosure, we use the American Inventor's Protection Act that made the content of firms' patent applications public within 18 months after filing, rather than at the grant date. Firms in industries that experienced a greater change in the publicity of their patent applications were significantly more likely to switch lenders. We also consider the reverse link of the substitution relationship, and explore the impact of improved lender informedness following the creation of universal banks on firms' patenting behavior. We find that firms patent less, without negatively altering their investment in innovation and its outcomes, such as new-product announcements.

Keywords: corporate disclosure, Information Acquisition, innovation, loan contracting, patenting

JEL Classification: G20, G21, O31

Suggested Citation

Saidi, Farzad and Zaldokas, Alminas, Patents as Substitutes for Relationships (October 2016). CEPR Discussion Paper No. DP11580, Available at SSRN: https://ssrn.com/abstract=2858243

Farzad Saidi (Contact Author)

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Alminas Zaldokas

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

Clear Water Bay, Kowloon
Hong Kong

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