Knowledge Asset Pledgeability and Financing Innovation
62 Pages Posted: 7 Sep 2012 Last revised: 17 Oct 2019
Date Written: October 1, 2012
The high external financing costs for innovating firms may have considerably suppressed the U.S. economy by discouraging R&D. Estimating a dynamic model of investment and capital structure with the simulated method of moments, I quantify the potential economic benefits that would be achieved by enhancing knowledge asset pledgeability to provide R&D-intensive firms with less costly debt financing. My results indicate that a small increase in the pledgeability of knowledge assets already suffices to significantly alleviate firms' financing constraints in R&D, potentially offering substantial economic benefits to innovating firms and a profound boost to technological innovation. Suggesting an essential connection between finance, innovation, and the economy, my findings have timely implications for financial, economic, and accounting issues regarding the recognition and treatment of firm knowledge assets.
Keywords: R&D, knowledge assets, pledgeability, structural estimation, financing constraints
JEL Classification: C33, D92, E22, G31, G32, O32, O40
Suggested Citation: Suggested Citation