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.
Arvid, H., Kleimeier, S., Mimiroglu, N., & Pennings, J. M. E. (2019). The American Inventors Protection Act: A Natural Experiment on Innovation Disclosure and the Cost of Debt. International Review of Finance, 19(3), 641-651. https://doi.org/10.1111/irfi.12174