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

This paper examines the role of trademark protection in bank loan contracting by exploiting the 1996 Federal Trademark Dilution Act (FTDA) that substantially strengthened the protection of famous trademarks. A difference-in-differences analysis based on the FTDA suggests that firms with more famous trademarks pay significantly lower interest rates, and reveal lower cash flow volatility and higher profitability. We also find a significantly increased frequency in firms’ use of trademarks as collateral to secure bank loans. These results are consistent with the view that banks account for enhanced brand value through trademark protection that strengthens firms’ market positions.