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.
- g21 - "Banks; Depository Institutions; Micro Finance Institutions; Mortgages"
- g32 - "Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill"
- o32 - Management of Technological Innovation and R&D
- syndicated loan
- lead arranger
- information asymmetry
- moral hazard