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The American Inventors Protection Act: A Natural Experiment on Innovation Disclosure and the Cost of Debt

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  • Arvid O. I. Hoffmann
  • Stefanie Kleimeier
  • Nagihan Mimiroglu
  • Joost M. E. Pennings

Abstract

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.

Suggested Citation

  • Arvid O. I. Hoffmann & Stefanie Kleimeier & Nagihan Mimiroglu & Joost M. E. Pennings, 2019. "The American Inventors Protection Act: A Natural Experiment on Innovation Disclosure and the Cost of Debt," International Review of Finance, International Review of Finance Ltd., vol. 19(3), pages 641-651, September.
    • Handle: RePEc:bla:irvfin:v:19:y:2019:i:3:p:641-651
    DOI: 10.1111/irfi.12174
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    Cited by:

    1. James M. Plečnik & Leo L. Yang & Joseph H. Zhang, 2022. "Corporate innovation and future earnings: does early patent disclosure matter?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 2011-2056, April.
    2. Hoffmann, Arvid O.I. & Kleimeier, Stefanie, 2021. "How do banks finance R&D intensive firms? the role of patents in overcoming information asymmetry✰," Finance Research Letters, Elsevier, vol. 38(C).
    3. Baruffaldi, Stefano H. & Simeth, Markus, 2020. "Patents and knowledge diffusion: The effect of early disclosure," Research Policy, Elsevier, vol. 49(4).

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