I examine how increasing firms’ ownership of employee patents affects debt financing. I exploit a Court of Appeals Federal Circuit ruling that increased firms’ property rights to employee patents. I find that firm ownership of patents increases firms’ total debt-to-assets ratio by 18%, which is equivalent to a $62 million increase in total debt. I also provide evidence that the firm ownership of patents improves innovation productivity and patent pledgeability, which further ease firms’ access to secured and longer-maturity debt. Finally, I show that firms’ increased property rights to employee patents help reduce holdup problems in innovation processes. 

JEL classification: D23, G32, O32, O34.
Keywords: Property rights, Patents, Innovation, Law and finance.​