Dynamic Competition, Innovation and Strategic Financing

64 Pages Posted: 17 Jul 2008 Last revised: 1 Mar 2015

See all articles by Matthew I. Spiegel

Matthew I. Spiegel

Yale University - Yale School of Management, International Center for Finance

Heather Tookes

Yale University - Yale School of Management; Yale University - International Center for Finance

Date Written: July 1, 2008

Abstract

This paper models the interactions among product market innovation, product market competition, and corporate financing decisions in the context of a dynamic duopoly. One competitor faces an opportunity to adopt a new technology. If adopted, the firm must also determine whether it will obtain public or private financing. Our results allow us to relate current firm and industry characteristics to these decision variables. In particular, larger, more profitable firms with small rivals have the greatest incentives to innovate. The private versus public financing decision depends mainly on the magnitude of the technological improvement and length of the period during which private financing extends the innovator’s product market advantage. Due to the model’s formulation it is both tractable and amenable to empirical estimation. We estimate the model and provide estimates of the value of innovation and private financing for a sample of industries and firms.

Keywords: stragetic financing, finance, market competition, corporate financing

JEL Classification: G32, D43

Suggested Citation

Spiegel, Matthew I. and Tookes, Heather, Dynamic Competition, Innovation and Strategic Financing (July 1, 2008). Available at SSRN: https://ssrn.com/abstract=1161239 or http://dx.doi.org/10.2139/ssrn.1161239

Matthew I. Spiegel (Contact Author)

Yale University - Yale School of Management, International Center for Finance ( email )

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HOME PAGE: http://som.yale.edu/~spiegel

Heather Tookes

Yale University - Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States

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