Leverage Intellectual Property: The Value of Harmonized Enforcement Regimes

Abstract

We provide new evidence on how intellectual property (IP) rights support external debt financing
by investigating exogenous variation in patent right enforcement. Deploying a unique, large-scale
sample of European firms, we exploit the 2004 EU Enforcement Directive, a major legislative change
strengthening IP rights across Europe, as identifying event. Results show that firms with valuable
patent portfolios disproportionally increase debt financing by about 21%. Effects are particularly
pronounced for private SMEs, ex-ante financially constrained firms, and in competitive environments. Adding previously undisclosed patent collateral information provides suggestive evidence that enhanced IP enforcement benefits debt financing beyond a mere collateral channel.

Keywords: Intellectual property rights, debt financing, legal enforcement, financing constraints

JEL Classification: G30, G32, O32, O34