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The Financing of Research and Development
01 Jan 2002-Research Papers in Economics (Department of Economics, Institute for Business and Economic Research, UC Berkeley)-
TL;DR: In this article, the authors show that there are limits to venture capital as a solution to the funding gap, especially in countries where public equity markets are not highly developed, and further study of governmental seed capital and subsidy programs using quasi-experimental methods is warranted.
Abstract: Evidence on the "funding gap" for RD 2) evidence for high costs of RD 3) there are limits to venture capital as a solution to the funding gap, especially in countries where public equity markets are not highly developed; and 4) further study of governmental seed capital and subsidy programs using quasi-experimental methods is warranted.
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TL;DR: The research and development costs of 106 randomly selected new drugs were obtained from a survey of 10 pharmaceutical firms and used to estimate the average pre-tax cost of new drug and biologics development.
2,190 citations
TL;DR: In this article, the authors estimate dynamic R&D models for high-tech firms and find significant effects of cash flow and external equity for young, but not mature, firms.
Abstract: The financing of R&D provides a potentially important channel to link finance and economic growth, but there is no direct evidence that financial effects are large enough to impact aggregate R&D. U.S. firms finance R&D from volatile sources: cash flow and stock issues. We estimate dynamic R&D models for high-tech firms and find significant effects of cash flow and external equity for young, but not mature, firms. The financial coefficients for young firms are large enough that finance supply shifts can explain most of the dramatic 1990s R&D boom, which implies a significant connection between finance, innovation, and growth.
1,420 citations
TL;DR: In this article, the authors surveyed evidence on the "funding gap" for investment innovation and concluded that while small and new innovative firms experience high costs of capital that are only partly mitigated by the presence of venture capital, the evidence for high costs for large firms is mixed.
Abstract: Evidence on the “funding gap” for investment innovation is surveyed. The focus is on financial market reasons for underinvestment that exist even when externality-induced underinvestment is absent. We conclude that while small and new innovative firms experience high costs of capital that are only partly mitigated by the presence of venture capital, the evidence for high costs of R&D capital for large firms is mixed. Nevertheless, large established firms do appear to prefer internal funds for financing such investments and they manage their cash flow to ensure this. Evidence shows that there are limits to venture capital as a solution to the funding gap, especially in countries where public equity markets for VC exit are not highly developed. We conclude by suggesting areas for further research.
880 citations
TL;DR: In this paper, the authors argue that the internal social capital that proponents may develop inside the crowdfunding community provides crucial assistance in igniting a self-reinforcing mechanism, and they show that the effect of these internal social networks on the success of a campaign is fully mediated by the capital and backers collected in the campaign's early days.
Abstract: The nascent crowdfunding literature has highlighted the existence of a self-reinforcing pattern whereby contributions received in the early days of a campaign accelerate its success. After discussing what sustains this pattern, we maintain that the internal social capital that proponents may develop inside the crowdfunding community provides crucial assistance in igniting a self-reinforcing mechanism. Results of an econometric analysis of a sample of 669 Kickstarter projects are consistent with this view. Moreover, the effect of internal social capital on the success of a campaign is fully mediated by the capital and backers collected in the campaign's early days.
779 citations
TL;DR: The authors reviewed the empirical literature on the determination of firms and industries' innovative activity and performance, highlighting the questions addressed, the approaches adopted, impediments to progress in the field, and research opportunities.
Abstract: This chapter reviews the empirical literature on the determination of firms’ and industries’ innovative activity and performance, highlighting the questions addressed, the approaches adopted, impediments to progress in the field, and research opportunities. We review the “neo-Schumpeterian” empirical literature that examines the effects of firm size and market concentration upon innovation, focusing on robust findings, questions of interpretation, and the identification of major gaps. We also consider the more modest literature that considers the effect on innovation of firm characteristics other than size. Finally, we review the literature that considers three classes of factors that affect interindustry variation in innovative activity and performance: demand, appropriability, and technological opportunity conditions.
759 citations