The Impact of Financial Resources on Corporate Inventions: Quasi-Natural Experimental Evidence from Financial Market Integration

Authors: David Heller (Goethe University)

Title: The Impact of Financial Resources on Corporate Inventions: Quasi-Natural Experimental Evidence from Financial Market Integration

Abstract: I empirically investigate the effects of increases in external funding onfirm-level patenting. Results indicate that the impact offinance on inventive activities is more multilayered than commonly suggested. In fact, changes in the level of funding affect value-relevant characteristics of patentsled. In a quasi-natural experimental setup, I utilize staggered and country-specific legislative amendments of the Europeanfinancial market harmonization during the 2000s as an exogenous shift improvingfirms' access to funding. First, I show thatfinancial integration leads to increased bank lending to ex ante financially constrained firms. Second, I analyze whether affectedfirms changed their patenting activities. Ifind that increased funding is associated with more patents in quantitative terms but of lower average technological quality and value. Further, affected firms alternate towardsfiling fewer explorative (i.e. impactful and generally applicable) but rather incremental patents. By providing new insights on the relation offinance and inventions, my results therefore suggest that it is important to acknowledge potentially diverse effects from improvingfirms' access tofinancial resources.