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Capital control, debt financing and innovative activity

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  • Czarnitzki, Dirk
  • Kraft, Kornelius

Abstract

The present paper discusses the effects of dispersed versus concentrated capital ownership on investment into innovative activity. While the market for equity capital might exert insufficient control on top managements' behavior, this weakness may be mitigated by a suitable degree of debt financing. We report the results of an empirical study on the determinants of innovative activity measured by patent applications. Using a large sample of German manufacturing firms, we find that companies with widely held capital stock are more active in innovation, i.e. weakly controlled managers show a higher innovation propensity. However, the higher the leverage the more disciplined the managers behave.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 71 (2009)
Issue (Month): 2 (August)
Pages: 372-383

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Handle: RePEc:eee:jeborg:v:71:y:2009:i:2:p:372-383

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Keywords: Innovation Patents Corporate governance Limited dependent variables;

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Citations

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Cited by:
  1. Balsmeier, Benjamin & Czarnitzki, Dirk, 2014. "How important is industry-specific managerial experience for innovative firm performance?," ZEW Discussion Papers 14-011, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Aschhoff, Birgit & Schmidt, Tobias, 2006. "Empirical evidence on the success of R&D co-operation: Happy together?," ZEW Discussion Papers 06-59, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Czarnitzki, Dirk & Binz, Hanna L., 2008. "R&D Investment and Financing Constraints of Small and Medium-Sized Firm," ZEW Discussion Papers 08-047, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Ghosh, Saibal, 2012. "Does R&D intensity influence leverage? Evidence from Indian firm-level data," MPRA Paper 38945, University Library of Munich, Germany.
  5. Jackie Di Vito & Claude Laurin & Yves Bozec, 2008. "Corporate Ownership Structure And Innovation In Canada," Post-Print halshs-00522508, HAL.
  6. Elisabeth Müller & Volker Zimmermann, 2009. "The importance of equity finance for R&D activity," Small Business Economics, Springer, Springer, vol. 33(3), pages 303-318, October.
  7. Mueller, Elisabeth & Zimmermann, Volker, 2006. "The Importance of Equity Finance for R&D Activity: Are There Differences Between Young and OldCompanies?," ZEW Discussion Papers 06-14, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. Fryges, Helmut & Kohn, Karsten & Ullrich, Katrin, 2012. "The interdependence of R&D activity and debt financing of young firms," ZEW Discussion Papers 12-016, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Nicolas Classen & Martin Carree & Anita Gils & Bettina Peters, 2014. "Innovation in family and non-family SMEs: an exploratory analysis," Small Business Economics, Springer, Springer, vol. 42(3), pages 595-609, March.
  10. Maaß, Frank & Schröder, Christian & Wolter, Hans-Jürgen, 2013. "Kleine und mittlere Unternehmen der Informations- und Kommunikationswirtschaft in Nordrhein-Westfalen," IfM-Materialien 224, Institut für Mittelstandsforschung (IfM) Bonn.

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