Patent Trolls and Capital Structure Decisions in High-Tech Firms

85 Pages Posted: 8 Jan 2021 Last revised: 10 Mar 2021

See all articles by Ran Duan

Ran Duan

University of Rochester - Simon Business School

Date Written: November 13, 2020

Abstract

Under the growing threat of patent trolls, high-tech firms face substantial legal fees, increased cash flow volatility, and greater expected costs of distress. I show that the exposure to patent litigation leads to overly conservative capital structures in high-tech firms. My identification exploits a 2017 U.S. Supreme Court decision limiting the ability of patent trolls to seek favorable venue outside the defendant’s incorporating state. Following the decision, firms incorporated in states with strong anti-patent troll laws increased leverage. Treatment effects are stronger for high-tech firms, the premier targets of patent trolls. Decreased cash flow volatility, especially in treated firms closer to financial distress, provides a key channel for my results.

Keywords: Patent Trolls, NPEs, Capital Structure, Innovation, Patents, Law and Finance, Litigation

JEL Classification: G32, O30, K40

Suggested Citation

Duan, Ran, Patent Trolls and Capital Structure Decisions in High-Tech Firms (November 13, 2020). Available at SSRN: https://ssrn.com/abstract=3730425 or http://dx.doi.org/10.2139/ssrn.3730425

Ran Duan (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

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