Financial Dependence and Innovation

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2014-07-02

Summary:

Editor's Note: The following post comes to us from Viral Acharya, Professor of Finance at NYU, and Zhaoxia Xu of the Department of Finance and Risk Engineering at NYU.

While innovation is crucial for businesses to gain strategic advantage over competitors, financing innovation tends to be difficult because of uncertainty and information asymmetry associated with innovative activities (Hall and Lerner (2010)). Firms with innovative opportunities often lack capital. Stock markets can provide various benefits as a source of external capital by reducing asymmetric information, lowering the cost of capital, as well as enabling innovation in firms (Rajan (2012)). Given the increasing dependence of young firms on public equity to finance their R&D (Brown et al. (2009)), understanding the relation between innovation and a firm’s financial dependence is a vital but under-explored research question. In our paper, Financial Dependence and Innovation: The Case of Public versus Private Firms, which was recently made publicly available on SSRN, we fill this gap in the literature by investigating how innovation depends on the access to stock market financing and the need for external capital.

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Link:

http://blogs.law.harvard.edu/corpgov/2014/07/02/financial-dependence-and-innovation/

From feeds:

Blogs.law Aggregation Hub » The Harvard Law School Forum on Corporate Governance and Financial Regulation

Tags:

academic research comparative corporate governance & regulation cash flows external financing innovation patents private firms public firms r&d viral acharya zhaoxia xu

Authors:

R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation,

Date tagged:

07/02/2014, 16:20

Date published:

07/02/2014, 09:00