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The American Inventors Protection Act: A Natural Experiment on Innovation Disclosure and the Cost of Debt
Author(s) -
Hoffmann Arvid O. I.,
Kleimeier Stefanie,
Mimiroglu Nagihan,
Pennings Joost M. E.
Publication year - 2019
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12174
Subject(s) - debt , incentive , business , proxy (statistics) , natural experiment , shock (circulatory) , monetary economics , industrial organization , accounting , economics , finance , microeconomics , medicine , statistics , mathematics , machine learning , computer science
We examine the impact of innovation disclosure through patenting on firms' cost of debt, focusing on the American Inventors Protection Act (AIPA) as an exogenous shock in innovation disclosure regulation. Post‐AIPA, firms have an incentive to apply for patents only if commercial success is likely. Accordingly, we expect post‐AIPA patents to be a better proxy for successful innovation activity, and thus to have a stronger effect on reducing the cost of debt than pre‐AIPA patents. Indeed, we find that pre‐AIPA patents reduce the cost of debt only for the most innovative firms, while post‐AIPA, this effect holds for all firms.