Selling Innovation in Bankruptcy

72 Pages Posted: 24 Jan 2017 Last revised: 30 Oct 2019

See all articles by Song Ma

Song Ma

Yale School of Management

(Joy) Tianjiao Tong

Duke University, Fuqua School of Business

Wei Wang

Queen's University - Smith School of Business

Date Written: October 28, 2019

Abstract

We analyze patent reallocation in the bankruptcy of innovative firms. Firms sell their core (i.e., technological critical and valuable) patents in Chapter 11 reorganization. This pattern concentrates in firms whose secured creditors have strong control rights. The mechanism is that core patents are collateralized for secured borrowing ex ante, and collateralized patents are sold under creditor control in bankruptcy. Patents sold in bankruptcy are less cited under new ownership and are more likely to be purchased by patent trolls. The paper highlights the effects of financial contracting on the reorganization of bankrupt innovative firms and the diffusion of technology.

Keywords: Bankruptcy, Innovation, Patent, Asset Allocation, Creditor Control, 363

JEL Classification: G33, O34

Suggested Citation

Ma, Song and Tong, (Joy) Tianjiao and Wang, Wei, Selling Innovation in Bankruptcy (October 28, 2019). Available at SSRN: https://ssrn.com/abstract=2903003 or http://dx.doi.org/10.2139/ssrn.2903003

Song Ma (Contact Author)

Yale School of Management ( email )

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

HOME PAGE: http://faculty.som.yale.edu/songma/

(Joy) Tianjiao Tong

Duke University, Fuqua School of Business ( email )

Durham, NC
United States
9199374680 (Phone)

Wei Wang

Queen's University - Smith School of Business ( email )

Queen's University-Smith School of Business
143 Union Street
Kingston, Ontario K7L 3N6
Canada

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