Does Corporate Financial Architecture of Innovative Companies Differ? The Evidence From USA

Journal of Corporate Finance Research, Vol. 12, No. 4, pp. 7-28, 2018

22 Pages Posted: 3 Apr 2019

See all articles by Irina Ivashkovskaya

Irina Ivashkovskaya

National Research University Higher School of Economics

Sergei Evdokimov

National Research University Higher School of Economics

Date Written: 2018

Abstract

Each company operates within the framework of interrelated structures: ownership, corporate governance and capital structure. The particular combination of these dimensions determines the corporate financial architecture of the company. Despite the growing body of literature on the challenges of the knowledge economy to the structural dimensions of companies, still little is known about the financial architecture of innovative firms. At the same time it is widely recognized that such companies substantially differ from traditional types of businesses in their business models and dynamics. Meanwhile, the financial architecture of a company generates the distribution of the incentives to enhance innovations affecting interests and risk-sharing among stakeholders. To address the lack of research into the interaction of corporate structures and their distinct features in innovative companies, this paper aims at identifying the robust financial architecture patterns of innovative companies. Using a sample of more than 1,300 publicly traded US-based manufacturing companies, we use an agglomerative hierarchical clustering method to identify relevant patterns and compare them to the firms which are not considered to be ‘knowledge intensive’. The empirical results allow the identification of seven robust financial architecture patterns within innovative companies. Our findings show that the first major difference between the financial architecture of innovative and non-innovative firms is in the higher role of activist institutional investors in the ownership. The second notable difference is related to CEO-duality, which plays a significant role in corporate governance only in innovative firms. Moreover, innovative companies are less leveraged than non-innovative firms. In addition, mature innovative companies demonstrate better financial performance.

Keywords: innovative firms, ownership structure, governance, financial architecture, companies’ performance, cluster analysis

JEL Classification: G30, G32

Suggested Citation

Ivashkovskaya, Irina and Evdokimov, Sergei, Does Corporate Financial Architecture of Innovative Companies Differ? The Evidence From USA (2018). Journal of Corporate Finance Research, Vol. 12, No. 4, pp. 7-28, 2018. Available at SSRN: https://ssrn.com/abstract=3346380

Irina Ivashkovskaya (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Sergei Evdokimov

National Research University Higher School of Economics ( email )

136, Rodionova street
25/12, Bolshaya pecherskaya street
Nizhniy Novgorod, 603155
Russia

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