The Paradox of Innovation Non-Disclosure: Evidence from Licensing Contracts

63 Pages Posted: 19 Jan 2017 Last revised: 9 Sep 2022

See all articles by Gaurav Kankanhalli

Gaurav Kankanhalli

University of Pittsburgh - Katz Graduate School of Business

Alan Kwan

The University of Hong Kong

Kenneth J. Merkley

Indiana University - Kelley School of Business - Department of Accounting

Date Written: July 15, 2021

Abstract

Innovative firms face a trade-off between disclosing to investors and maintaining secrecy from competitors. We study this trade-off in a sample of intellectual property (IP) licenses mandatorily disclosed by US public firms, whose contents can be temporarily redacted. Hand-classifying the redacted information, we show that firms with valuable IP in competitive markets redact more often. Despite increased information asymmetry, markets react positively to redaction of IP-specific information, suggesting non-disclosure signals valuable IP. The within-firm positive returns response is pronounced in the presence of innovation-oriented institutional owners and dampened when they are distracted. Our results suggest that credible non-disclosure partially resolves information frictions for innovative firms in public markets when facilitated by sophisticated investors.

Keywords: Innovation, Disclosure, Redaction, Licensing, Patents, R&D

JEL Classification: G30, G38, O30, O32, O34

Suggested Citation

Kankanhalli, Gaurav and Kwan, Alan and Merkley, Kenneth J., The Paradox of Innovation Non-Disclosure: Evidence from Licensing Contracts (July 15, 2021). Available at SSRN: https://ssrn.com/abstract=2902341 or http://dx.doi.org/10.2139/ssrn.2902341

Gaurav Kankanhalli (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Alan Kwan

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Kenneth J. Merkley

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
766
Abstract Views
3,125
Rank
57,356
PlumX Metrics