Trademark Protection and Bank Loan Contracting: The Evidence from the 1996 Federal Trademark Dilution Act

Abstract

We construct a comprehensive database of public firms’ bank loans and trademarks to examine the role of brand names in bank financing; in particularly, we use the 1996 Federal Trademark Dilution Act (FTDA) that enhanced protection of famous trademarks as our identification strategy for a causal inference. A difference-in-differences analysis suggests that firms with more famous trademarks not only pay significantly lower interest rates, but also use more trademark collateral after the FTDA. Moreover, firms with more famous trademarks reveal lower cash flow volatility and higher profitability after the FTDA. Our empirical evidence indicates that banks indeed account for enhanced brand value in their lending decisions.