Financial Dependence and Innovation: The Case of Public Versus Private Firms
74 Pages Posted: 2 Jun 2014 Last revised: 4 Jun 2014
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Financial Dependence and Innovation: The Case of Public versus Private Firms
Financial Dependence and Innovation: The Case of Public Versus Private Firms
Date Written: February 1, 2014
Abstract
This paper examines the relationship between innovation and firms' dependence on external capital by analyzing the innovation activities of privately-held and publicly-traded firms We find that public firms in external finance dependent industries generate patents of higher quantity, quality, and novelty compared to their private counterparts, while public firms in internal finance dependent industries do not have a significantly better innovation profile than matched private firms. The results are robust to various empirical strategies that address selection bias. The findings suggest that public listing is beneficial to the innovation of firms in industries with a greater need for external capital.
Keywords: finance and growth, financial constraints, innovation, private firms, public firms, R&D
JEL Classification: G31, G32, O16, O30
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