Licensing as a source of financing

Although the licensing phenomenon has gained attention over the last decades, the role of licensing contracts as a source of external finance for innovation has been under-investigated by scholars so far. Empirical evidence, instead, suggests that accessing capital is among the most common reasons to out-license. In some circumstances licensors is required to further develop the licensed technology which the licensee may finance by paying an upfront fee. Thus, the need for extra finances may affect the decision of the licensor to negotiate and thus actually agree on a specific form of payment. The aim of our paper is to investigate whether financial constrained licensors are more likely to choose an upfront license and more incline to credit a portion of the initial fee against future royalties to meet their short-term financing needs. We investigate this issue by relying on an original dataset of patent licenses.