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Patents and corporate credit risk

: Frey, Carl Benedikt; Neuhäusler, Peter; Blind, Knut


Industrial and Corporate Change 21 (2020), No.2, pp.289-308
ISSN: 0960-6491
ISSN: 1464-3650
Journal Article
Fraunhofer FOKUS ()
Fraunhofer ISI ()

A vast literature documents a positive relationship between patents and companies stock market performance. Nevertheless, evidence on the influence of patents on companies’ debt capacity remains sparse. In this article, we examine the relationship between companies’ patent portfolios and their credit rating, providing relevant, albeit indirect, evidence on patents as a debt funding mechanism. Using a panel dataset on 155 U.S. firms, we find a positive relationship between companies’ credit rating and the size of their patent portfolio. Our indicators for valuable patents, however, provide a mixed picture. While there is a positive link between the average family size of a company’s patent portfolio and its credit ratings, we surprisingly find a significant negative relationship between patent forward citations and companies ratings. We hypothesize that this finding is the result of citations being associated with patent lawsuits, potentially incurring substantial losses on creditors.