Publication Date

1-2015

Abstract

This paper studies how credit constraints impact the management of corporate innovation. Specifically, my experiment exploits exogenous variations in the collateral value of real estate assets as shocks to firms’ credit constraints. Building on this experiment, I find evidence that higher collateral value increases the quantity, quality and novelty of innovation. I show that: (1) increase in collateral value leads to more patent filings, with each patent on average receiving more citations, citing patents from a wider range of industries, and more likely to be in industries different from the parent firm; (2) in response to collateral shocks, firms restructure their innovation strategies through different channels such as internal research and development (R&D), acquisitions of innovative targets, and corporation venture capital (CVC) investment – equity investment in startups by incumbent firms; (3) the effect of collateral shocks on innovation is more pronounced for firms that are ex-ante credit constrained, but mitigated if firms are located in Metropolitan Statistical Area (MSA) areas with high local real estate price volatility.

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