Firm age and loan financing with patents as collateral of Chinese startups: the roles of innovations and experience

This article examines how startups obtain loan financing through pledged patents as the startup’s age increases. By using a panel dataset containing 31,083 Chinese startups and 88,264 patents of invention from 2006 to 2015, we test and verify an inverted U-shaped relationship between the age of startups and their patent pledges, and there is an optimal age for patent collateral financing. Younger startups do not find it easy to obtain patent pledge financing, while older startups do not rely on this financing channel. We further verify that firm innovation capabilities and pledge experience can optimize the inverted U-shaped relationship between firm age and their likelihood of obtaining patent pledge financing by accelerating startups’ success in obtaining financing and steepening the curve. However, the optimization mechanism behind them is different. Specifically, the patent scale or innovative competitiveness of startups exhibits enterprise quality information to the lenders, while pledge experience is mainly beneficial to the transmission of soft information between the borrowers and lenders. Thus, we advance the research on startups’ using patents as loan collateral by emphasizing the temporal dimension of pledges and their interplay with innovation and experience at the firm level in emerging economics.