Property Rights and Debt Financing [R&R at the Review of Financial Studies]
I examine how increasing firms' ownership of employee patents affects debt financing. I exploit a Court of Appeals Federal Circuit ruling that increased firms' property rights to employee patents. I find that firm ownership of patents increases firms' total debt-to-assets ratio by 18%, which is equivalent to a $62 million increase in total debt. I also provide evidence that the firm ownership of patents improves innovation productivity and patent pledgeability, which further ease firms’ access to secured and longer-maturity debt. Finally, I show that firms’ increased property rights to employee patents help reduce holdup problems in innovation processes.
Inter-firm Patent Litigation and Innovation Competition (with Jongsub Lee and Seungjoon Oh)
Using novel inter-rm patent litigation data, we show that patent litigation has significant financial and real impacts; defendant firms become financially constrained, reduce innovation activity, and concomitantly shift toward more narrow-scoped innovations to reduce litigation risk. We also find significant litigation risk spillover to other non-litigated firms in the same industry. The product market overlap between defendants and plaintiffs exacerbates these financial and real consequences of patent litigation, indicating a significant interplay between intellectual property rights boundaries and product market dynamics. Using China's participation in Trade-Related Aspects of Intellectual Property Rights Agreement as an instrument, we alleviate potential endogeneity concerns.