' signaling-driven investment, despite the risk of buying a bad innovation. We finally show at what point the presence of active …

aggressive development of a basic innovation by better informed venture-backed firms is used as a signaling device to enhance the … sale price of the innovation. We then show that incumbents can undertake early, preemptive, acquisitions to prevent such … signaling driven overinvestment, despite the risk of buying a non-productive innovation. Therefore, to exist in equilibrium …

This paper documents that firms increasingly finance innovation with their stock of innovation, measured as patents. We … refer to this behavior as financing innovation with innovation. Drawing on patent collateral data from the US and China, we … US firms, (3) firms increase their borrowing and innovation activities once they start to engage in patent collateral. We …