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We analyze the impact of reduced financial constraints on in-
novating firms' performance and access to credit using a reform
that allowed firms to use patents as collateral. We develop a the-
oretical framework to guide the analysis and quantify the aggre-
gate impact of reduced financial constraints on misallocation and
productivity by mapping data moments, reduced form results and
model counterparts. Our empirical results suggest that reduced financial constraints led to an increase in firms' capital stock and
bank debt. Parameterizing the model we find quantitatively large
gains in output per worker in the sectors of the economy dominated
by constrained firms.
