Trademarks and Entrepreneurial Firm Success: Theory and Evidence from Private Firm Exits and Initial Public Offerings

89 Pages Posted: 12 Jun 2018 Last revised: 21 Aug 2021

See all articles by Thomas J. Chemmanur

Thomas J. Chemmanur

Boston College - Carroll School of Management

Harshit Rajaiya

University of Ottawa, Telfer School of Management, Department of Finance

Xuan Tian

Tsinghua University - PBC School of Finance

Qianqian Yu

Lehigh University

Onur Bayar

University of Texas at San Antonio - Carlos Alvarez College of Business

Date Written: September 9, 2018

Abstract

We analyze, theoretically and empirically, the role played by trademarks in the financing and performance of startup firms, for the first time in the literature. We first show theoretically, in a setting where firm insiders have private information about product quality and obtaining trademarks is costly, that trademarks increase firm operating performance (play a “protective role”), and allow them to convey information about intrinsic firm value to outside investors (play an “informational role”). Based on our model predictions, we develop testable hypotheses relating the number of trademarks held by private firms to the amount and staging of venture capital (VC) investment in these firms, their probability of successful exit (IPO or acquisition), IPO and secondary market valuations, institutional investor IPO participation, post-IPO operating performance, and post-IPO information asymmetry. We test these hypotheses using data on VC investment in private firms, private firm exit, and on initial public offerings and find supportive evidence. We conduct an IV analysis using the leniency of trademark examiners as the instrument and show that the above findings are causal.

Keywords: Trademarks; Initial Public Offerings (IPOs); Valuation; Private Firm Exit; Post-IPO Operating Performance

JEL Classification: G23, G24, L26, O34

Suggested Citation

Chemmanur, Thomas J. and Rajaiya, Harshit and Tian, Xuan and Yu, Qianqian and Bayar, Onur, Trademarks and Entrepreneurial Firm Success: Theory and Evidence from Private Firm Exits and Initial Public Offerings (September 9, 2018). Available at SSRN: https://ssrn.com/abstract=3183879 or http://dx.doi.org/10.2139/ssrn.3183879

Thomas J. Chemmanur (Contact Author)

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://https://www2.bc.edu/thomas-chemmanur/

Harshit Rajaiya

University of Ottawa, Telfer School of Management, Department of Finance ( email )

DMS 7163, Desmairas Building
55 Laurier Ave. E
Ottawa, K1N0A7
Canada

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

Qianqian Yu

Lehigh University ( email )

621 Taylor Street
Bethlehem, PA 18015
United States

Onur Bayar

University of Texas at San Antonio - Carlos Alvarez College of Business ( email )

The University of Texas at San Antonio
One UTSA Circle
San Antonio, TX 78249
United States
210-458-6837 (Phone)
210-458-6320 (Fax)

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