Essays on Property Rights and Financing

Abstract

This dissertation comprises of two essays on property rights and financing. The two essays have tight relationship under the broad theme of intellectual property rights of firms. The first essay focuses on property rights within firms, between firms and employees, whereas the second essay focuses on property rights between firms. The first essay examines how increasing firms' ownership of employee patents affects debt financing. I exploit a Court of Appeals Federal Circuit ruling that shifted property rights to employee patents from employees to firms, and find that firms' debt financing increases by 18%. The increase is attributable to firms' more efficient and productive use of patents, which improves the pledgeability of patents as collateral. I further show that a reduction in holdup problems increases synergistic value of patents through enhanced asset complementarity, inventor collaboration, and innovation productivity. The second essay uses novel hand-collected patent litigation data from 2000-2006 to show that patent litigation has important financial and real impacts on firms. We find that defendant firms experience declining financial flexibility and innovation activities, and shift innovation strategy to pursue more exploitative projects. The product market overlap exacerbates financial constraints of defendants in intra-industry litigation, whereas a large reduction of litigation probability when pursuing exploitative innovation intensifies narrower innovation scope for defendants in inter-industry litigation. We sharpen our results by instrumenting the probability of being sued and the timing of patent litigation using China's participation in TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement. Lastly, we find suggestive evidence that patent litigation has spillover effects on other non-litigated firms in the industry.