Abstract
Firms face a trade-off between patenting, thereby disclosing innovation, and secrecy. We show that this trade-off interacts with firms’ financing choices, as public-information provision through patents and private information in financial relationships are substitutes. As a shock to innovation disclosure, we study the American Inventor’s Protection Act that made firms’ patent applications public 18 months after filing, rather than when granted. Such increased innovation disclosure helped firms switch lenders, resulting in lower cost of debt. Our evidence lends support to the idea that lenders derive rents from informational monopolies when firms seek to finance innovation.