How do banks finance R&D intensive firms? the role of patents in overcoming information asymmetry

We examine how banks finance R&D intensive firms, focusing on the role of patents in overcoming information asymmetry in bank lending. Consistent with moral hazard in due diligence and monitoring, we find that lead arrangers retain a larger share of syndicated loans when lending to R&D intensive firms. Patents can partly overcome moral hazard problems, as banks retain a smaller share of R&D intensive firms' loans if these firms have patents as a signal of the quality of their inventions. Our results are robust to alternative explanatory variable definitions and syndicate structure measures, different samples and subperiods, and difference-in-difference estimations.

Automated summary

The study focuses on how banks finance R&D intensive firms and finds that lead arrangers tend to retain a larger share of syndicated loans when lending to these firms. Patents can help mitigate moral hazard issues, as banks retain a smaller share of loans to R&D intensive firms if they have patents as a signal of invention quality.