Patent value and liquidity: evidence from patent-collateralized loans in China

This paper studies how offering patents as collateral influences the decisions of Chinese lenders and determines features that make patents more acceptable as collateral. We develop a lending model incorporating a borrower’s likelihood of default, the value of patents offered as collateral, and their liquidity. We show it is essential to consider both the future value and future liquidity of patent collateral, explain why higher-value and more liquid patents are more acceptable collateral, and indicate how patent-collateralization improves high-risk SMEs’ chances of receiving loans. We clarify how the complexity of technology influences patent liquidity. An empirical examination employing a novel dataset of patents accepted as collateral in China finds that patents characterized by larger patent family size, broader claim scope, smaller inventor teams, and less supplier-concentrated technological fields are more likely to be accepted as collateral.