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Which patents to use as loan collaterals? The role of newness of patents' external technology linkage

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  • Yan Anthea Zhang
  • Zhuo Emma Chen
  • Yuandi Wang
Abstract
Research Summary Patent collateral is an important aspect in the debt financing of firms. We argue that in accepting patent collaterals, lenders need to balance between risk of obsolescence and risk of unverified external inventions, both of which are related to patents' external technology linkage. Patents linked to old external inventions are subject to risk of obsolescence while patents linked to too new external inventions are subject to risk of unverified external inventions, and therefore we propose patents linked to moderately new external inventions are more likely to be pledged. We further propose the turning point of this curvilinear relationship depends on borrowing firms' attributes: firm‐specificity of their patent assets and their technological specialization domains. Using data on 107,180 U.S. semiconductor patents, our results support these propositions. Managerial Summary Patent collateralization represents an important innovation in the debt market. Then, how to choose appropriate patents as collaterals is an important question for patenting firms and financial institutions accepting patents as collaterals. Our results suggest that patents linked to old external inventions are less likely to be pledged because such patents may become obsolete soon, patents linked to too new external inventions are also less likely to be pledged because such patents may be deemed too risky, and patents linked to moderately new external inventions are more likely to pledged. We further find that lenders' concerns on risk of unverified external inventions become more salient if borrowing firms' inventions are more firm‐specific but become less so if borrowing firms specialize in the patents' technological domains.

Suggested Citation

  • Yan Anthea Zhang & Zhuo Emma Chen & Yuandi Wang, 2021. "Which patents to use as loan collaterals? The role of newness of patents' external technology linkage," Strategic Management Journal, Wiley Blackwell, vol. 42(10), pages 1822-1849, October.
    • Handle: RePEc:bla:stratm:v:42:y:2021:i:10:p:1822-1849
    DOI: 10.1002/smj.3316
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    Cited by:

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    2. Dan Prud’homme & Tony W. Tong, 2024. "Rethinking firm-specific advantages from intellectual property rights: Boundary conditions for MNEs," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 55(1), pages 91-109, February.
    3. Chen, Yu & Wang, Yuandi & Zhao, Changyi, 2023. "How do high-speed rails influence city carbon emissions?," Energy, Elsevier, vol. 265(C).
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    5. Xie, Linlin & Liu, Guangqiang & Liu, Boyang, 2023. "Patent pledge policy and stock price crash risk: Evidence from China," Research in International Business and Finance, Elsevier, vol. 65(C).
    6. Pan, Xin & Chen, Xuanjin & Qiu, Shumin, 2024. "Pushing boundaries or overstepping? Exploring the paradoxical impact of radical innovation on government subsidies in Chinese SMEs," Technovation, Elsevier, vol. 132(C).
    7. Jiang, Cuiqing & Zhou, Yiru & Chen, Bo, 2023. "Mining semantic features in patent text for financial distress prediction," Technological Forecasting and Social Change, Elsevier, vol. 190(C).
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