The Timing Dilemma: Understanding the Determinants of Startups’ Patents as Collateral for Loans

This paper proposes a timing dilemma in which lenders are racing with two forces from the uncertainty of patent valuation and the validity of a patent’s economic/legal life. Based on a large sample which contains Chinese startups’ pledged patents, we verify the lenders’ trade-off between uncertainty and validity over time. We also find that the endorsements from third parties can help lenders cope with the timing dilemma by mitigating uncertainty while saving time. Thus, we further the existing literature by expanding the determinants of using patents as loan collateral from static patent-level factors to dynamic multilevel factors.