Patent pledgeability, trade secrecy, and corporate patenting*

We identify a positive effect of patent pledgeability on corporate patenting. Our tests exploit staggered city-level policy changes that allow firms to use patents as collateral for financing. We find a significant increase in patents and patent citations for firms headquartered in cities that have adopted such policies relative to firms headquartered in cities that have not. We further show that patent pledgeability increases corporate patenting by inducing firms to shift from secrecy-based innovation to patent-based innovation, rather than by mitigating financial constraints.