Bankrupt Innovative Firms

50 Pages Posted: 31 May 2021 Last revised: 29 Sep 2022

See all articles by Song Ma

Song Ma

Yale School of Management; National Bureau of Economic Research (NBER)

(Joy) Tianjiao Tong

Ivey Business School, Western University

Wei Wang

Queen's University - Smith School of Business

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Date Written: May 2021

Abstract

This paper studies how innovative firms manage their innovation portfolios after filing for Chapter 11 reorganization using three decades of data. We find that they sell off core (i.e., technologically critical and valuable), rather than peripheral, patents in bankruptcy. The selling pattern is driven almost entirely by firms with greater use of secured debt, and the mechanism is secured creditors exercising their control rights on collateralized patents. Creditor-driven patent sales in bankruptcy have implications for technology diffusion—the sold patents diffuse more slowly under new ownership and are more likely to be purchased by patent trolls.

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Suggested Citation

Ma, Song and Tong, (Joy) Tianjiao and Wang, Wei, Bankrupt Innovative Firms (May 2021). NBER Working Paper No. w28856, Available at SSRN: https://ssrn.com/abstract=3856836

Song Ma (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
P.O. Box 208200
New Haven, CT 06511
United States

HOME PAGE: http://faculty.som.yale.edu/songma/

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

(Joy) Tianjiao Tong

Ivey Business School, Western University ( email )

1151 Richmond Street
London, Ontario N6A 5B8
Canada

Wei Wang

Queen's University - Smith School of Business ( email )

Queen's University-Smith School of Business
143 Union Street
Kingston, Ontario K7L 3N6
Canada

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