Owl Have You Know

Dr. Alan Crane, Associate Professor of Finance at Rice Business, joins host David Droogleever to discuss his teaching experience, how economics and finance go together and the importance of research in the commercial world.

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Patents are becoming an innovative source of collateral for businesses borrowing money, and there’s a time-critical sweet spot for lenders trying to calculate how much those patents are worth, according to new research from Rice University experts and collaborators.

Researchers from Rice's Jones Graduate School of Business, American University and Sichuan University studied how the novelty of a patent’s foundation – in other words, whether the patent is based upon more recent or relatively old prior inventions - affects how much it’s worth as collateral. They used data from 107,180 semiconductor patents owned by 436 U.S. firms in the industry. The researchers focused on how a patent’s “external technology linkage” – how often an inventor cites other businesses’ patents – can help lenders assess how much the patent might be worth to other firms.

“We find an inverted U-shaped relationship between the newness of a patent’s external technology linkage and the likelihood that the patent will be used as collateral,” wrote authors Yan Anthea Zhang, chair professor of strategy at Rice Business, Zhuo Emma Chen, assistant professor of strategy at American University, and Yuandi Wang, professor of strategy at Sichuan University.

Patents linked to newer inventions have a lower risk of obsolescence. But if the related inventions are too new, it raises the risk for lenders that the underlying technologies may not have been market-tested. The authors find that new patents linked to moderately new inventions are more likely to be pledged — that is, put up as collateral.
 

“Within a given firm’s patent portfolio, higher-quality patents (those that have been frequently cited by others) are more likely to be accepted by lenders as loan collaterals,” the authors wrote.

“None of the other patent characteristics — a patent’s claim counts, technology class counts, references to non-patent literature and originality — are related to the likelihood of being pledged.”

The authors investigated how the firms themselves affected this likelihood. If the borrowing firms’ patents are highly specific to that firm, meaning the patented technology is useful mainly to them, lenders’ concerns about the untested market for the technology rises. But if the borrowing firm’s business aligns with the same technological domain as the patent, the market would give the firm greater credibility and reduce lenders’ concerns about the risk of unverified patented inventions.

They also found that a firm's prior experience in putting up patents as collateral matters. Compared to firms with no or little experience, patents owned by firms that have more patent pledge experience are more likely to be accepted.

“As patent pledge represents a financial innovation, which is still in the early stage of adoption, firms that have more experience in patent pledge know how to do it and more importantly, have higher credibility in lenders’ eyes,” they wrote.

Borrowing against patents opens new doors for inventing firms, but lenders still face great challenges assessing the risk of accepting them as collateral.

Owl Have You Know

Cameron Simoneau ’05 and owner of Tri-State Running Company, speaks to host Christine Dobbyn about his transition from corporate life into entrepreneurship.

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Owl Have You Know

In this episode, Abbey Donnell ’17 joins host Christine Dobbyn to discuss how Rice Business empowered her to start her own company, the women entrepreneurship environment in Houston and how service providers can pivot through the pandemic.

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Updated from original post that was published on 11/30/2021.

It’s only natural you’d want to get to know your professors. What’s their classroom like? Are they researching something you can apply to your job or business idea? The decision about where to go to business school comes down to several factors. Who you’re learning from is key.

Our faculty, along with our students, staff and alumni, are the fabric of who we are. We’re intentional about who we recruit as faculty — both for research expertise and the unique insights they bring into the classroom. With an average class size of 40 and 211 faculty members — including more than 62 female faculty leading from the front of the classroom — you have the amazing opportunity to get to know your professors. Our 6:1 student-to-faculty ratio means impromptu conversations happen in the hallway after class when you have a question about a new concept. It means they follow up to see how that interview for your dream job went. It means they know your name and are invested in your success.

It also means that what they’re teaching in your course is infused with their latest and greatest research. From machine learning methods leading to understanding consumer and firm behavior better to designing and managing health care delivery systems, professors bring their findings into the classroom so you learn fresh ideas from the source.

You can read up on the professors who received this year’s Teaching Excellence Awards and learn about all our professor’s work on Rice Business Wisdom, the school’s online ideas magazine with tons of quick reads on the relevant, interesting, evidence-based research our faculty publish. This is a great way to get to know some of your professors before you start school.

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