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Patents, Capital Structure and the Demand for Corporate Securities

65 Pages Posted: 15 Mar 2005  

Stefano Rossi

Bocconi University; Krannert School of Management; Centre for Economic Policy Research (CEPR)

Date Written: September 2005


I assess empirically the implications of patent grants for corporate financing, investment and stock returns. I show that industry patents are associated with more firm-level equity issues and reduced leverage. Firms in industries with more patents issue more equity at a given point in time. Within industries, however, equity issuers are not patent recipients themselves. Remarkably, such equity issuers do not increase investments, dividends, or acquisitions. Rather, they hold the proceeds of equity issues in cash reserves. Finally, patent recipients earn high positive abnormal returns. These findings cast doubt on traditional views of patents as signals of investment opportunities or reductions of information asymmetry. The evidence is instead consistent with the view that patents are a catalyst for investor sentiment.

Notes: Previously titled "Technological Innovations and Capital Structure"

Keywords: Technological innovation, patent, capital structure

JEL Classification: G32, O33

Suggested Citation

Rossi, Stefano, Patents, Capital Structure and the Demand for Corporate Securities (September 2005). AFA 2006 Boston Meetings Paper. Available at SSRN: or

Stefano Rossi (Contact Author)

Bocconi University ( email )

Via Roentgen 1
Milano, MI 20136

Krannert School of Management ( email )

West Lafayette, IN 47907-1310
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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