Intellectual Property Protection and Financial Markets: Patenting vs. Secrecy
41 Pages Posted: 22 Jun 2018
Date Written: April 24, 2018
We argue stronger patent protection encourages firms to rely less on secrecy to protect intellectual property, thereby enhancing transparency and reducing equity-financing frictions. We first show disclosure of patent information causally improves stock liquidity. A legislative change (AIPA), that accelerated disclosure of most patent applications (18-months after filing), enhances stock liquidity for firms with longer patent processing times. We then test our hypothesis by exploiting implementation of an international trade agreement (TRIPS) that strengthened patent protection. Firms, especially exporters to TRIPS-compliant countries, exhibit an increase in patenting, stock liquidity and equity financing, with less negative market response to equity-financing announcements.
Keywords: Patents, Intellectual Property, Stock Liquidity, TRIPS, AIPA
JEL Classification: G14, G30, O31
Suggested Citation: Suggested Citation