Intellectual property in the context of firms’ exit strategies: The role of patents

By focusing on exits, their characteristics, patenting behaviour and the possible reasons behind exits, the paper provides a first attempt to answer the following question: What is the role of patents in firms’ exit strategies? While most exits can be the direct result of small and medium-sized enterprises’ failure to compete in a private market for various reasons, when exits involve intellectual property (IP), the situation may require thorough analysis because IP may play a double role. It can be a valuable asset to attract investors, and secure financing, therefore improving firms’ odds of survival and delaying exit (patent survival effect). On the other hand, IP can also be a very attractive asset for incumbents to acquire, accelerating exit from the market through mergers and acquisitions (patent trigger effect). Using data from Statistics Canada’s Canadian Patent Research Database and National Accounts Longitudinal Microdata File, this paper provides a detailed analysis of the role played by patents in the context of exits. The paper finds that firms that patent are more likely to be larger, to perform research and development, export their products, and be alive seven years after entry relative to businesses that do not patent. Furthermore, while the patent survival effect is estimated at a statistically significant 4.5%, the trigger effect was positive but not significant when regressing a fully specified model.