Bankrupt Innovative Firms

66 Pages Posted: 24 Jan 2017 Last revised: 4 May 2020

See all articles by Song Ma

Song Ma

Yale School of Management

(Joy) Tianjiao Tong

Ivey Business School, Western University

Wei Wang

Queen's University - Smith School of Business

Date Written: May 4, 2020


We study how innovative firms manage their innovation portfolios after filing for Chapter 11 reorganization using three decades of data. We find that they sell off core (i.e., technologically critical and valuable), rather than peripheral, patents in bankruptcy. The selling pattern is driven almost entirely by firms with strong secured creditor control, and the mechanism is secured creditors exercising their control rights on collateralized patents. Creditor-driven patent sales in bankruptcy have implications for technology diffusion---the sold patents diffuse more slowly under new ownership and are more likely to be purchased by opportunistic patent trolls.

Keywords: Failed Firms, Innovation, Patent, Bankruptcy, Creditor Control

JEL Classification: G33, O34

Suggested Citation

Ma, Song and Tong, (Joy) Tianjiao and Wang, Wei, Bankrupt Innovative Firms (May 4, 2020). 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

Ivey Business School, Western University ( email )

1151 Richmond Street
London, Ontario N6A 5B8

Wei Wang

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

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

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