Intellectual Property Protection and Financial Markets: Patenting versus Secrecy. (5th November 2020)

• Record Type: Journal Article
• Authors: Dass, Nishant; Nanda, Vikram; Park, Haemin Dennis; Xiao, Steven Chong
• Is Part Of: Review of finance. Volume 25:Number 3(2021)
• Page Start: 669
• Page End: 711
• Publication Date: 2020-11-05
• Subjects: Trade secrets -- Patents -- Intellectual property -- Stock liquidity -- TRIPS; G14 -- G30 -- O31; Finance -- Europe -- Periodicals; Financiën; Finance; Periodicals; 332.09405
• DOI: 10.1093/rof/rfaa033
• Languages: English
• ISSNs: 1572-3097

Abstract

Abstract: Firms rely on patenting and trade secrecy to protect their intellectual property. We study how changes in the trade-off between patenting and secrecy affect firms' stock liquidity and financing outcomes. We show that an international trade agreement (TRIPS) that strengthened patent protection led to a 10.2% increase in patenting, accompanied by a 14.0%–27.1% improvement in stock liquidity for firms in patent-reliant industries. This in turn allows the affected firms to increase equity financing by 1.9% and reduce leverage by 5.9%. Our results suggest that policies that promote use of patenting over secrecy can reduce informational frictions in equity markets.