Patents as Loan Collateral in Sweden : An empirical analysis of what patent characteristics matter for collateralization

Abstract: This study analyses empirically what patent characteristics matter for collateralization. In accordance with the finance literature, loan collateral is determined by the liquidation value of the asset which in turn depends on the three factors "physical attributes of the asset", "number of alternative users" and "financial strength of alternative users". Hence, the study is focusing on patent characteristics influencing the three factors of the liquidation value. To control for firm effects of the patent pledging firms, a treatment group of pledged patents and a comparison group of unpledged patents have been matched based on firm characteristics of the patent owner. The subsequent empirical analysis revealed that patent characteristics related to the physical attributes of patents enhancing their redeployability matter for collateralization. Patent characteristics related to the market liquidity measuring the financial strength of alternative users, are insignificant. Furthermore, the study confirms the additional function of patents as source of finance by offering them for loan collateral. Especially small and young firms, scare of tangible assets pledge patents for receiving debt finance.