Patents, Capital Structure and the Demand for Corporate Securities
Krannert School of Management; Centre for Economic Policy Research (CEPR)
AFA 2006 Boston Meetings Paper
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.
Note: Previously titled "Technological Innovations and Capital Structure"
Number of Pages in PDF File: 65
Keywords: Technological innovation, patent, capital structure
JEL Classification: G32, O33
Date posted: March 15, 2005