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Abstract In addition to the conventional role of protecting technology output,patent plays an information role in the communication between firms and their stakeholders.Recently studies have been focused on the signaling value of patents in capital market,suggesting patents as quality signals are recognized by investors.Also studies show that the signaling effect of patents depends on to what extent investors know about firms.Further,this study discusses if patents’ signaling effect depends on what investors know about firms.Specifically,this study proposes in negative signal context (firms with lower past performance,higher return volatility,higher future uncertainty),the signaling value of patents would be stronger and vice versa.Panel data analysis based on 1787 firms on Shanghai and Shenzhen stock market from 2000 to 2011 support these hypotheses.Patent number has positive effect on external financing,and the effect is stronger in negative context.Robustness test shows that invention patents have stronger signaling effect than noninvention patents,and private firms benefit more from patent signal than stateowned firms do.
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