Pooyan Khashabi (Ludwig-Maximilians-University, Munich) will present a paper titled: "Technology disclosure and capital market uncertainty: the case of patent"
While R&D is necessary to create competitive advantage for firms, it can also create information asymmetry between the management and capital markets, thus leading to forecast difficulties and uncertainty about firms’ future prospects. Consequently, R&D-intensive firms experience pressure from capital markets in the form of increase in cost of capital, underinvestment, and undervaluation. We test whether patenting, as an information disclosure mechanism about firms’ R&D, is an effective strategy for mitigating such uncertainties. By taking advantage of a quasi-natural experiment created by the American Inventor’s Protection Act (1999), we provide causal evidence that information disclosure through patents does reduce uncertainty about the firm in the capital market. The mechanism, however, is less effective when patents are scientifically broader and entail higher ex-post value.