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Financial dependence and innovation: The case of public versus private firms

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  • Acharya, Viral
  • Xu, Zhaoxia

Abstract

In this paper, we examine the relation between innovation and a firm’s financial dependence using a sample of privately held and publicly traded US firms. We find that public firms in external finance dependent industries spend more on research and development and generate a better patent portfolio than their private counterparts. However, public firms in internal finance dependent industries do not have a better innovation profile than private firms. The results are robust to various empirical strategies that address selection bias. The findings indicate that the influence of public listing on innovation depends on the need for external capital.

Suggested Citation

  • Acharya, Viral & Xu, Zhaoxia, 2017. "Financial dependence and innovation: The case of public versus private firms," Journal of Financial Economics, Elsevier, vol. 124(2), pages 223-243.
    • Handle: RePEc:eee:jfinec:v:124:y:2017:i:2:p:223-243
    DOI: 10.1016/j.jfineco.2016.02.010
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    More about this item

    Keywords

    Private firms; Public firms; Innovation; R&D; Financial dependence;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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