Patents have collateral value, while trade secrets generally do not. This paper studies whether financially constrained R&D-intensive firms strategically file patent applications to relieve borrowing constraints. Using experiments of negative shocks to external debt financing, we present evidence that R&D-intensive firms increase patent filings immediately in response to the exogenous increase in financing constraints. The effect of increased patent filings is more pronounced among R&D-intensive firms with shorter expected time of patent grants, of larger size, and with a higher proportion of public debt on their balance sheets. Long-term debt financing increases subsequent to patent applications. My findings are consistent with the findings that patents can be collateralized to support...[ Read more ]

Patents have collateral value, while trade secrets generally do not. This paper studies whether financially constrained R&D-intensive firms strategically file patent applications to relieve borrowing constraints. Using experiments of negative shocks to external debt financing, we present evidence that R&D-intensive firms increase patent filings immediately in response to the exogenous increase in financing constraints. The effect of increased patent filings is more pronounced among R&D-intensive firms with shorter expected time of patent grants, of larger size, and with a higher proportion of public debt on their balance sheets. Long-term debt financing increases subsequent to patent applications. My findings are consistent with the findings that patents can be collateralized to support debt financing, and R&D-intensive firms use patent filings as a tool to mitigate financing constraints.