Intellectual Property as Loan Collateral

The evolution towards an increasingly intangible economy leads to financing gaps worldwide, especially for bankdependent small firms. However, once protected by intellectual property (IP) rights, intangible capital becomes a fungible asset. Leveraging a unique data source, this study sheds light on previously unexplored dimensions of the role of IP assets as loan collateral by analyzing all major commercial IP rights: trademarks, patents, and design rights. In a quasi-natural experiment, we show that IP rights can be an integral part of loan agreements. We find that pledgeability depends on specific IP characteristics rather than the IP type, with redeployability and cash flow attribution being the key determinants of IP asset pledgeability across IP assets. From a managerial perspective, these findings suggest that IP collateralization is a promising strategy that widens firms’ financing opportunities, especially for intangible-rich and financially constrained firms.