Patent trolls and capital structure decisions in high-tech firms

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

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Detail(s)

Original languageEnglish
Article number106987
Journal / PublicationJournal of Banking and Finance
Volume155
Online published29 Aug 2023
Publication statusPublished - Oct 2023

Abstract

Under the growing threat of patent trolls, high-tech firms face substantial legal fees, increased cash flow volatility, and greater expected costs of distress. I show that the exposure to patent litigation leads to overly conservative capital structures in high-tech firms. My identification exploits a 2017 U.S. Supreme Court decision limiting the ability of patent trolls to seek favorable venue outside the defendant's incorporating state. Following the decision, firms incorporated in states with strong anti-patent troll laws increased leverage. The effects are driven by high-tech firms, the premier targets of patent trolls. Decreased cash flow volatility, especially in treated firms closer to financial distress, provides a key economic channel for my results. © 2023 Elsevier B.V.

Research Area(s)

  • Capital structure, Innovation, Law and finance, NPEs, Patent trolls, Patents

Bibliographic Note

Full text of this publication does not contain sufficient affiliation information. With consent from the author(s) concerned, the Research Unit(s) information for this record is based on the existing academic department affiliation of the author(s).