Patent collateral and the trajectory of innovation

Taking the Chinese policy project of patent collateral policy as the quasi-natural experiment setting, we investigate the impact of patent collateral policy on the corporate innovation trajectory. We find that patent collateral increases applications of exploitative patent and its proportion in total patent applications, but no significant impact on exploratory innovation is observed. This finding is still robust in a series of robustness tests. The mechanism tests show that the impact of patent collateral promotes firms' exploitative innovation mainly by increasing the accessibility of firms' bank loans. The economic effects test shows that the patent collateral policy can reduce the deviation of analyst forecast and ease corporate financing constraints, which plays an important role in stabilizing capital market expectations. Heterogeneity analysis shows that patent collateral policy mainly promotes exploitative innovation of companies whose senior executives have no financial background, non-high-tech companies and non-SOEs. This paper enriches the research on the innovation incentive effects of patent collateral policy by providing an empirical investigation of the impact of patent collateral policy on corporate innovation trajectory. It helps to provide insights for emerging market countries as to improve patent collateral policy to promote the quality of corporate innovation.