How do banks finance R&D intensive firms?: The role of patents in overcoming information asymmetry

Arvid O.I. Hoffmann; Stefanie Kleimeier

doi:10.1016/j.frl.2020.101485

How do banks finance R&D intensive firms? The role of patents in overcoming information asymmetry

Arvid O.I. Hoffmann, Stefanie Kleimeier^*

^*Corresponding author for this work

Finance

Research output: Contribution to journal › Article › Academic › peer-review

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Abstract

We examine how banks finance R&D intensive firms, focusing on the role of patents in overcoming information asymmetry in bank lending. Consistent with moral hazard in due diligence and monitoring, we find that lead arrangers retain a larger share of syndicated loans when lending to R&D intensive firms. Patents can partly overcome moral hazard problems, as banks retain a smaller share of R&D intensive firms’ loans if these firms have patents as a signal of the quality of their inventions. Our results are robust to alternative explanatory variable definitions and syndicate structure measures, different samples and subperiods, and difference-in-difference estimations.

Original language	English
Article number	101485
Number of pages	9
Journal	Finance Research Letters
Volume	38
Early online date	31 Mar 2020
DOIs	https://doi.org/10.1016/j.frl.2020.101485
Publication status	Published - Jan 2021

JEL classifications

o32 - Management of Technological Innovation and R&D
g21 - "Banks; Depository Institutions; Micro Finance Institutions; Mortgages"
g32 - "Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill"

Keywords

information asymmetry
innovation
lead arranger
moral hazard
patent
syndicated loan
Innovation
Information asymmetry
Lead arranger
Patent
Syndicated loan
Moral hazard

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Cite this

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title = "How do banks finance R&D intensive firms?: The role of patents in overcoming information asymmetry",

abstract = "We examine how banks finance R&D intensive firms, focusing on the role of patents in overcoming information asymmetry in bank lending. Consistent with moral hazard in due diligence and monitoring, we find that lead arrangers retain a larger share of syndicated loans when lending to R&D intensive firms. Patents can partly overcome moral hazard problems, as banks retain a smaller share of R&D intensive firms{\textquoteright} loans if these firms have patents as a signal of the quality of their inventions. Our results are robust to alternative explanatory variable definitions and syndicate structure measures, different samples and subperiods, and difference-in-difference estimations.",

keywords = "information asymmetry, innovation, lead arranger, moral hazard, patent, syndicated loan, Innovation, Information asymmetry, Lead arranger, Patent, Syndicated loan, Moral hazard",

author = "Hoffmann, {Arvid O.I.} and Stefanie Kleimeier",

note = "data sources: Loan Pricing Corporation's DealScan database ;Compustat; Worldwide Patent Statistical Database PATSTAT",

year = "2021",

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doi = "10.1016/j.frl.2020.101485",

language = "English",

volume = "38",

journal = "Finance Research Letters",

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publisher = "Elsevier BV",

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T2 - The role of patents in overcoming information asymmetry

AU - Hoffmann, Arvid O.I.

AU - Kleimeier, Stefanie

N1 - data sources: Loan Pricing Corporation's DealScan database ;Compustat; Worldwide Patent Statistical Database PATSTAT

PY - 2021/1

Y1 - 2021/1

N2 - We examine how banks finance R&D intensive firms, focusing on the role of patents in overcoming information asymmetry in bank lending. Consistent with moral hazard in due diligence and monitoring, we find that lead arrangers retain a larger share of syndicated loans when lending to R&D intensive firms. Patents can partly overcome moral hazard problems, as banks retain a smaller share of R&D intensive firms’ loans if these firms have patents as a signal of the quality of their inventions. Our results are robust to alternative explanatory variable definitions and syndicate structure measures, different samples and subperiods, and difference-in-difference estimations.

AB - We examine how banks finance R&D intensive firms, focusing on the role of patents in overcoming information asymmetry in bank lending. Consistent with moral hazard in due diligence and monitoring, we find that lead arrangers retain a larger share of syndicated loans when lending to R&D intensive firms. Patents can partly overcome moral hazard problems, as banks retain a smaller share of R&D intensive firms’ loans if these firms have patents as a signal of the quality of their inventions. Our results are robust to alternative explanatory variable definitions and syndicate structure measures, different samples and subperiods, and difference-in-difference estimations.

KW - information asymmetry

KW - innovation

KW - lead arranger

KW - moral hazard

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KW - syndicated loan

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KW - Information asymmetry

KW - Lead arranger

KW - Patent

KW - Syndicated loan

KW - Moral hazard

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DO - 10.1016/j.frl.2020.101485

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