|
on Corporate Finance |
| By: | Zhiyuan Chen; Minjie Deng; Min Fang |
| Abstract: | This paper documents that firms are increasingly financing innovation using their stock of innovation, measured as patents. We refer to this behavior as financing innovation with innovation. Drawing on patent collateral data from both the US and China, we first show that (1) in both countries, the total number and share of patents pledged as collateral have been rising steadily, (2) Chinese firms employ patents as collateral on a smaller scale and with a lower intensity than US firms, (3) firms increase their borrowing and innovation after they start to use patent collateral. We then construct a heterogeneous firm general equilibrium model featuring idiosyncratic productivity risk, innovation capital investment, and borrow- ing constrained by patent collateral. The model emphasizes two barriers that hinder the use of patent collateral: high inspection costs and low liquidation values of patent assets. We parameterize the model to firm-level panel data in the US and China and find that both barriers are significantly more severe in China than in the US. Finally, counterfactual analyses show that the gains in innovation, output, and welfare from reducing the inspection costs in China to the US level are substantial, moreso than enhancing the liquidation value of patent assets. |
| Keywords: | Patent collateral; innovation investment; financial frictions; firm dynamics; |
| JEL: | E22 G32 O31 O33 |
| Date: | 2023–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-749&r=cfn |
| By: | Olivier Dessaint (INSEAD); Thierry Foucault (HEC Paris - Finance Department); Laurent Frésard (Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute) |
| Abstract: | We study how the quality of investors' information across horizons influences investment. In our theory, managers care about how investment is impounded in current stock prices. Because prices imperfectly reflect investment’s value, they under-invest. However, they under-invest less when investors have better information about the horizon matching that of their projects. Using a measure of projects' horizon obtained from the text of regulatory filings, we find that improvements in investors' long-term (short-term) information induce firms with long-term (short-term) projects to invest more, especially when managers focus on current stock prices. Therefore, the quality of investors' information across horizons has real effects. |
| Keywords: | Project Horizon, Short-termism, Information Quality, Forecasting horizon, Forecasts’ informativeness, Managerial Incentives |
| JEL: | D84 G14 G17 M41 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2303&r=cfn |