Intellectual property and the survival of internet-related NASDAQ-IPOs

We examine the effect of patenting on the survival prospects of 356 firms that made an IPO on the NASDAQ at the height of the stock market bubble of the late 1990s. By March 2005, almost 2/3 had delisted from the exchange either though apparent bankruptcy or by being acquired by another firm. Almost 1/3 of these firms obtained, or attempted to obtain, at least one US patent. Controlling for other determinants of firm-survival like firm-age, venture-capital backing, financial characteristics or stock market conditions, patenting turns out to be positively associated with the length of the listing of these firms on the NASDAQ. In a multivariate survival model we find that the number of patent applications significantly decreases the risk of ”exit” during the sample period. However, this effect is driven almost entirely by the impact on the probability of exit via acquisition by another firm. Moreover, we find that primarily firms owning high-quality patterns are acquired, while others firms are more likely to delist from the NASDAQ due to bankruptcy. *Financial support from the German Academic Exchange Service DAAD is gratefully acknowledged.