Patent Trolls and Capital Structure Decisions in High-Tech Firms
85 Pages Posted: 8 Jan 2021 Last revised: 10 Mar 2021
Date Written: November 13, 2020
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: Suggested Citation