Corporate Bankruptcy and the Knowledge-Based View - A quantitative analysis of the patent portfolio strength's impact on bankruptcy

Abstract: Little is known about the underlying causes of corporate bankruptcy from a strategic management position. Most research on bankruptcies stems from the field of accounting, while scholars in strategic management have so far mostly studied the determinants of superior rather than inferior performance. This thesis fills that research gap by deploying the knowledge-based view (an extension of the resource-based view) as established theory in order to explain bankruptcy. More specifically, it is argued that patents represent a technology firm's most important (knowledge) resources. Firms with weak or no patent portfolios face, therefore, a competitive disadvantage in technology industries. Hence, it is hypothesized that firms with inferior patent portfolios are more likely to file for bankruptcies than firms with superior patent portfolios. Further, it is argued that this effect is moderated by the firm's belonging to a high-technology industry, by the firm's age and by the firm's size. Additionally, a negative relationship between growth of patent strength and bankruptcy likelihood is expected. These hypotheses were tests, applying logistic regression analysis to a sample of 220 publicly listed US firms that filed for bankruptcy between 2006 and 2013 and a control group of 220 comparable firms. As expected, the results show a statistically highly significant relationship between patent strength and bankruptcy probability. Further a significant moderator effect was found for firm age and size. No statistically significant impact was found for growth of patent strength and for industry belonging as moderator. These finding contribute to the theory development on causes of bankruptcy and offer relevant implications for scholars and practitioners in regards to the role of patent resources for corporate bankruptcy.