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.