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Selling Innovation in Bankruptcy

70 Pages Posted: 24 Jan 2017 Last revised: 20 Aug 2017

Song Ma

Yale School of Management

(Joy) Tianjiao Tong

Duke University, Fuqua School of Business

Wei Wang

Queen's School of Business

Date Written: August 20, 2017


This article provides the first empirical investigation of the facts and economics of innovation reallocation in corporate bankruptcy. We compile a comprehensive data set of US Chapter 11 filings, USPTO patent transaction documents, and US court records on asset sales. We document that patent sales in bankruptcy are pervasive, immediate, and front-loaded in asset reallocations. Firms sell patents that are more liquid--as opposed to selling underexploited or peripheral patents. The effect is driven by firms that suffer financial (but not economic) distress, experience industry-wide distress, and have no access to external financing. Bankrupt firms selling innovation tend to retain inventors and continue to cite the sold patents after the sale. The results are consistent with the view that bankrupt firms sell innovation to satisfy imminent financing needs, as opposed to redeploying underexploited innovation for asset restructuring.

Keywords: Bankruptcy, Innovation, Patent, Asset Allocation, Liquidity, Fire Sale

JEL Classification: G33, O34

Suggested Citation

Ma, Song and Tong, (Joy) Tianjiao and Wang, Wei, Selling Innovation in Bankruptcy (August 20, 2017). Available at SSRN: or

Song Ma (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
P.O. Box 208200
New Haven, CT 06511
United States


(Joy) Tianjiao Tong

Duke University, Fuqua School of Business ( email )

Durham, NC
United States
9199374680 (Phone)

Wei Wang

Queen's School of Business ( email )

143 Union Street
Kingston, Ontario K7L 3N6

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