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The Relation Between Patent Pledgeability and Credit Rationing

In: New Challenges for the Banking Industry

Author

Listed:
  • Aineas Mallios

    (University of Gothenburg)

  • Ted Lindblom

    (University of Gothenburg)

  • Stefan Sjögren

    (University of Gothenburg)

Abstract

We analyze the economic issue raised when financial intermediaries refuse to supply credit to a borrower even at a higher rate than that posted by lenders. We suggest that patent-backed loans can be used as a contracting device to reduce credit rationing in loan markets characterized by imperfect information. Patents have become among the most valuable assets of firms in high-technology industries. They determine the production of goods and contain information about the firms’ credit quality. Patents can also be used by banks to screen borrowers. We provide a theoretical foundation showing that patents used as collateral may reduce the level of information asymmetry in loan markets and facilitate also bank lending. Using a setup of financial intermediation with capital constrained entities and imperfect information, we suggest that patent pledging can be used to minimize credit rationing. This may lead to more investment in innovation and more growth.

Suggested Citation

  • Aineas Mallios & Ted Lindblom & Stefan Sjögren, 2023. "The Relation Between Patent Pledgeability and Credit Rationing," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Santiago Carbó-Valverde & Pedro J. Cuadros-Solas (ed.), New Challenges for the Banking Industry, chapter 0, pages 283-303, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-031-32931-9_11
    DOI: 10.1007/978-3-031-32931-9_11
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