Financial dependence and innovation: The case of public versus private firms
TL;DR: In this paper, the authors examined the relation between innovation and a firm's financial dependence using a sample of privately held and publicly traded US firms and found that public firms in external finance dependent industries spend more on research and development and generate a better patent portfolio than their private counterparts.
About: This article is published in Journal of Financial Economics.The article was published on 2017-05-01. It has received 283 citations till now. The article focuses on the topics: Listing (finance) & Patent portfolio.
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TL;DR: In this paper, the authors use a comprehensive sample of publicly listed firms in 30 countries over the period 2001-2010 to find that greater foreign institutional ownership fosters long-term investment in tangible, intangible, and human capital.
280 citations
TL;DR: In this paper, the authors examine the impact of government economic policy uncertainty on corporate innovation and identify a cost-of-capital transmission channel and find that GEPU increases firms' cost of capital, which translates into lower innovation.
Abstract: We examine the impact of government economic policy uncertainty (GEPU) on corporate innovation and identify a cost-of-capital transmission channel. We find that GEPU increases firms’ cost of capital, which translates into lower innovation. As economic policy uncertainty rises, firms with more exposure to such uncertainty face a higher weighted average cost of capital and innovate less. Innovations of financially constrained firms and firms relying on external finance in a competitive environment are affected more. Our study provides novel evidence that higher economic policy uncertainty hinders innovation not only through the traditional investment irreversibility channel, but also through the cost-of-capital channel.
212 citations
TL;DR: In this article, the authors show that banks that benefited from the OMT announcement increased their overall loan supply, but this supply was mostly targeted towards low-quality firms with pre-existing lending relationships with these banks.
Abstract: On July 26, 2012 the ECB’s president Mario Draghi announced to do “whatever
it takes” to preserve the Euro and subsequently launched the Outright Monetary
Transactions (OMT) Program, which led to a significant increase in the value of
sovereign bonds issued by European periphery countries. As a result, the OMT announcement
indirectly recapitalized periphery country banks due to their significant
holdings of these bonds. However, the regained stability of the European banking
sector has not fully transferred into economic growth. We show that this development
can at least partially be explained by zombie lending motives of banks that
still remained undercapitalized after the OMT announcement. While banks that
benefited from the announcement increased their overall loan supply, this supply
was mostly targeted towards low-quality firms with pre-existing lending relationships
with these banks. As a result, there was no positive impact on real economic
activity like employment or investment. Instead, these firms mainly used the newly
acquired funds to build up cash reserves. Finally, we document that creditworthy
firms in industries with a prevalence of zombie firms suffered significantly from the
credit misallocation, which slowed down the economic recovery.
183 citations
TL;DR: In this article, the authors provide a synthetic and evaluative monograph of academic papers that examine the drivers and financing sources of corporate innovation, and provide a survey of the top three finance journals that published a total of only five papers on corporate innovation from 2000 to 2008, the number of such papers published by these three journals skyrocketed to 56 from 2009 to the third quarter of 2017.
Abstract: Corporate innovation is an increasingly important topic that has attracted great attention from academic researchers in financial economics in recent years. Although the top three finance journals (i.e. the Journal of Finance, the Journal of Financial Economics, and the Review of Financial Studies) together published a total of only five papers on corporate innovation from 2000 to 2008, the number of such papers published by these three journals skyrocketed to 56 from 2009 to the third quarter of 2017. The purpose of this survey is to provide a synthetic and evaluative monograph of academic papers that examine the drivers and financing sources of corporate innovation.
136 citations
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TL;DR: In this article, the relationship between average return and risk for New York Stock Exchange common stocks was tested using a two-parameter portfolio model and models of market equilibrium derived from the two parameter portfolio model.
Abstract: This paper tests the relationship between average return and risk for New York Stock Exchange common stocks. The theoretical basis of the tests is the "two-parameter" portfolio model and models of market equilibrium derived from the two-parameter portfolio model. We cannot reject the hypothesis of these models that the pricing of common stocks reflects the attempts of risk-averse investors to hold portfolios that are "efficient" in terms of expected value and dispersion of return. Moreover, the observed "fair game" properties of the coefficients and residuals of the risk-return regressions are consistent with an "efficient capital market"--that is, a market where prices of securities
14,171 citations
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TL;DR: This paper examined whether financial development facilitates economic growth by scrutinizing one rationale for such a relationship: that financial development reduces the costs of external finance to firms, and they found that industrial sectors that are relatively more in need of foreign finance develop disproportionately faster in countries with more developed financial markets.
Abstract: This paper examines whether financial development facilitates economic growth by scrutinizing one rationale for such a relationship: that financial development reduces the costs of external finance to firms. Specifically, the authors ask whether industrial sectors that are relatively more in need of external finance develop disproportionately faster in countries with more-developed financial markets. They find this to be true in a large sample of countries over the 1980s. The authors show this result is unlikely to be driven by omitted variables, outliers, or reverse causality. Copyright 1998 by American Economic Association.
5,425 citations
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TL;DR: In this paper, the authors present a survey on the use of patent data in economic analysis, focusing on the patent data as an indicator of technological change and concluding that patent data remain a unique resource for the study of technical change.
Abstract: This survey reviews the growing use of patent data in economic analysis. After describing some of the main characteristics of patents and patent data, it focuses on the use of patents as an indicator of technological change. Cross-sectional and time-series studies of the relationship of patents to R&D expenditures are reviewed, as well as scattered estimates of the distribution of patent values and the value of patent rights, the latter being based on recent analyses of European patent renewal data. Time-series trends of patents granted in the U.S. are examined and their decline in the 1970s is found to be an artifact of the budget stringencies at the Patent Office. The longer run downward trend in patents per R&D dollar is interpreted not as an indication of diminishing returns but rather as a reflection of the changing meaning of such data over time. The conclusion is reached that, in spite of many difficulties and reservations, patent data remain a unique resource for the study of technical change.
4,845 citations
TL;DR: This paper found that the majority of managers would avoid initiating a positive NPV project if it meant falling short of the current quarter's consensus earnings, and more than three-fourths of the surveyed executives would give up economic value in exchange for smooth earnings.
4,341 citations
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TL;DR: Hall et al. as mentioned in this paper explored the usefulness of patent citations as a measure of the "importance" of a firm's patents, as indicated by the stock market valuation of the firm's intangible stock of knowledge.
Abstract: Author(s): Hall, Bronwyn H.; Jaffe, A; Trajtenberg, M | Abstract: We explore the usefulness of patent citations as a measure of the "importance" of a firm's patents, as indicated by the stock market valuation of the firm's intangible stock of knowledge. Using patents and citations for 1963-1995, we estimate Tobin's q equations on the ratios of RaD to assets stocks, patents to RaD, and citations to patents. We find that each ratio significantly affects market value, with an extra citation per patent boosting market value by 3%. Further findings indicate that "unpredictable" citations have a stronger effect than the predictable portion, and that self-citations are more valuable than external citations.
2,989 citations