Managing Innovation: The Role of Collateral

66 Pages Posted: 5 Apr 2017 Last revised: 20 Apr 2021

See all articles by Yifei Mao

Yifei Mao

Cornell University - SC Johnson College of Business - Finance Department

Date Written: March 24, 2017


Using exogenous variations in the market value of corporate real estate, this paper investigates whether appreciation of corporate collateral value facilitates innovation. My baseline finding shows that real estate appreciation leads to an increase in innovation quantity as measured by patent productions and in innovation quality as measured by citations per patent, especially when firms are credit constrained. To uncover the underlying channel, I show that real estate appreciation allows additional secured borrowing, which enables firms to increase their innovative investments including internal research and development (R&D), the acquisition of innovative target firms, and corporate venture capital (CVC). Moreover, following real estate appreciation, firms change the trajectory of innovation, as reflected in the patent-filing industries and in the characteristics of acquisitions and CVC investment deals. Finally, I provide evidence that firms that innovate more in response to real estate appreciation tend to have better future financial health and accounting profitability.

Keywords: innovation, real estate, collateral, secured borrowing, sale-leaseback, headquarter relocation

JEL Classification: G24, G32, G34, O31, O32, R30

Suggested Citation

Mao, Yifei, Managing Innovation: The Role of Collateral (March 24, 2017). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: or

Yifei Mao (Contact Author)

Cornell University - SC Johnson College of Business - Finance Department ( email )

Ithaca, NY 14850
United States

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